new issue ra tings:m oody’s:a a2 b ook-entry-o nly s& p :a ... · d ated:d ate ofd elivery d...
TRANSCRIPT
N E W IS S UE RA TIN GS :M oody’s:A a2B ook-E ntry-O nly S & P :A A
(S ee “Ratings”herein)In the opinion of Bond Counsel for the Bonds (defined below), based upon an analysis of laws, regulations, rulings and
court decisions, and assuming continuing compliance with certain covenants made by the University, and subject to theconditions and limitations set forth herein under the caption “TAX MATTERS,” interest on the 2016 Series A Bonds(definedbelow) is excludable from gross income for Federal income tax purposes and is not a specific item of tax preference for purposesof the Federal individual or corporate alternative minimum taxes. HOWEVER, INTEREST ON THE 2016 SERIES B BONDS(DEFINED BELOW) IS NOT EXCLUDIBLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. Interest onthe Bonds is exempt from Kentucky income tax and the Bonds are exempt from ad valorem taxation by the Commonwealth ofKentucky and any of its political subdivisions. See “TAX MATTERS” herein.
UN IV E RS ITY O F KE N TUC KY
$107 ,47 0,000GE N E RA L RE C E IP TS B O N D S ,
2016 S E RIE S A
and
$48 ,310,000GE N E RA L RE C E IP TS B O N D S ,
2016 TA X A B L E S E RIE S B
D ated:D ate of D elivery D u e:A pril1,as shown on the inside cover
The University of Kentucky General Receipts Bonds, 2016 Series A (the “2016 Series A Bonds”)are being issued as tax-exempt obligations. University of Kentucky General Receipts Bonds, 2016Taxable Series B (the “2016 Series B Bonds”) will be issued as taxable obligations. The 2016 Series ABonds and 2016 Series B Bonds are referred to herein, collectively as the “Series 2016 Bonds.” TheSeries 2016 Bonds will be issued only as fully registered bonds, and when issued, will be registered in thename of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”),which will act as securities depository for the Series 2016 Bonds. Purchasers will not receive certificatesrepresenting their ownership interest in the Series 2016 Bonds purchased. So long as DTC or its nomineeis the registered owner of the Series 2016 Bonds, payments of the principal of and interest due on theSeries 2016 Bonds will be made directly to DTC.
The Series 2016 Bonds are in the denomination of $5,000 or integral multiples thereof and bearinterest from their dated date, payable semiannually, in amounts, having maturities, interest rates, yields,and CUSIPs as set forth on inside cover hereof. Principal of, premium, if any, and interest on the Series2016 Bonds will be paid directly to DTC by U.S. Bank National Association, having offices in Louisville,Kentucky, as Trustee and Paying Agent. The Series 2016 Bonds shall be issued only as fully registeredbonds.
The 2016 Series A Bonds and 2016 Series B Bonds are subject to optional and mandatoryredemption prior to their stated maturities as described herein.
The Series 2016 Bonds constitute special obligations of the University of Kentucky and do notconstitute a debt, liability or obligation of the Commonwealth of Kentucky nor a pledge of the full faithand credit of the Commonwealth. The Series 2016 Bonds constitute Obligations under the TrustAgreement dated as of November 1, 2005 between the University and the Trustee, and the payment of theprincipal of, premium, if any, and interest on Series 2016 Bonds is secured by a pledge of the University’sGeneral Receipts, as defined in the Trust Agreement. See “SECURITY FOR THE BONDS.”
The Series 2016 Bonds are issued subject to the approval of legality by Dinsmore & Shohl LLP,Covington, Kentucky, Bond Counsel. Delivery of the Series 2016 Bonds is expected on February 10,2016 in New York, New York, through the facilities of DTC.
Dated: January 20, 2016
$107 ,47 0,000GE N E RA L RE C E IP TS B O N D S ,
2016 S E RIE S A
Year(April 1) Amount
InterestRate Yield
CUSIP1
914378Year
(April 1) AmountInterest
Rate YieldCUSIP1
9143782027 $900,000 2.500% 2.500% JT2 2033 $5,225,000 4.000% 2.880% JZ82028 900,000 4.000 2.450 JU9 2034 5,435,000 4.750 2.650 KA12029 900,000 4.000 2.540 JV7 2035 5,690,000 3.000 3.250 KB92030 3,380,000 5.000 2.250 JW5 2036 5,860,000 3.125 3.300 KC72031 3,285,000 3.000 3.100 JX3 2037 6,045,000 4.000 3.150 KD52032 4,135,000 5.000 2.320 JY1
$12,775,000; 3.250%; Term Bonds due April 1, 2039; Price 97.921%; CUSIP: 914378 KF0$13,675,000; 4.000%; Term Bonds due April 1, 2041; Price 104.357%; CUSIP: 914378 KH6$39,265,000; 4.000%; Term Bonds due April 1, 2046; Price 103.879%; CUSIP: 914378 KN3
$48 ,310,000GE N E RA L RE C E IP TS B O N D S ,
2016 TA X A B L E S E RIE S B
Year(April 1) Amount
InterestRate Yield
CUSIP1
914378Year
(April 1) AmountInterest
Rate YieldCUSIP1
9143782017 $900,000 0.375% 0.550% KP8 2025 $3,965,000 2.770% 2.770% KX12018 3,290,000 0.875 1.010 KQ6 2026 4,075,000 2.920 2.920 KY92019 3,540,000 1.250 1.340 KR4 2027 3,295,000 3.070 3.070 KZ62020 3,580,000 1.500 1.590 KS2 2028 3,415,000 3.220 3.220 LA02021 3,635,000 1.750 1.910 KT0 2029 3,565,000 3.370 3.370 LB82022 3,700,000 2.125 2.230 KU7 2030 1,300,000 3.470 3.470 LC62023 3,780,000 2.375 2.430 KV5 2031 1,550,000 3.500 3.570 LD42024 3,870,000 2.500 2.620 KW3 2032 850,000 3.625 3.670 LE2
________________________________________________________________________________________
1 Copyright, American Bankers Association. CUSIP data herein are provided by Standard & Poor’s CUSIP Service Bureau, a division of TheMcGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of holders only at the time ofissuance of the Series 2016 Bonds and the University and the Underwriters do not make any representation with respect to such numbers orundertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to beingchanged after the issuance of the Series 2016 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole orin part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors thatis applicable to all or a portion of certain maturities of the Series 2016 Bonds
TH E UN IV E RS ITY O F KE N TUC KY
B O A RD O F TRUS TE E S
Edward Britt Brockman, Chair Cammie DeShields Grant, MemberC.B. Akins, Sr., Vice Chair Robert Grossman, MemberKelly Sullivan Holland, Secretary David V. Hawpe, MemberClause A. “Skip” Berry, III, Member Terry Mobley, MemberJames H. Booth, Member Austin M. Mullen, MemberWilliam C. Britton, Member C. Frank Shoop, MemberSheila Brothers, Member Robert D. VanceMark P. Bryant, Member John F. Wilson, MemberAngela L. Edwards, Member Barbara Young, MemberWilliam Stamps Farish, Jr., MemberOliver Keith Gannon, Member
Carol Martin “Bill” Gatton, Ex Officio,Honorary Member
E X E C UTIV E O FFIC E RS
Eli Capilouto, PresidentTim Tracy, Provost
Michael Karpf, Executive Vice President for Health AffairsEric Monday, Executive Vice President for Finance and Administration
B O N D C O UN S E L
Dinsmore & Shohl LLPCovington, Kentucky
FIN A N C IA L A D V IS O R
J.J.B. Hilliard, W.L. Lyons, LLCLouisville, Kentucky
TRUS TE E A N D P A Y IN G A GE N T
U.S. Bank National AssociationLouisville, Kentucky
RE GA RD IN G US E O F TH IS O FFIC IA L S TA TE M E N T
This Official Statement does not constitute an offering of any security other than the originaloffering of the Series 2016 Bonds of the University of Kentucky identified on the cover page hereof. Noperson has been authorized by the University of Kentucky to give any information or to make anyrepresentation other than that contained in this Official Statement, and if given or made such otherinformation or representation must not be relied upon as having been given or authorized by theUniversity of Kentucky or the Financial Advisor. This Official Statement does not constitute an offer tosell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2016 Bonds by anyperson in any jurisdiction in which it is unlawful to make such offer, solicitation or sale.
The information and expressions of opinion herein are subject to change without notice, andneither the delivery of this Official Statement nor any sale made hereunder shall, under anycircumstances, create any implication that there has been no change in the affairs of the University ofKentucky since the date hereof.
Neither the Securities and Exchange Commission nor any other federal, state or othergovernmental entity or agency, except the University of Kentucky, will pass upon the accuracy oradequacy of this Official Statement or approve the Series 2016 Bonds for sale (see “APPROVAL OFISSUANCE OF BONDS”).
TA B L E O F C O N TE N TS
INTRODUCTORY STATEMENT.......................................................................................................... 1THE BONDS............................................................................................................................................ 1
General ............................................................................................................................................... 1Book-Entry-Only System ................................................................................................................... 1Redemption Provisions....................................................................................................................... 2
SECURITY FOR THE BONDS .............................................................................................................. 3Pledge of General Receipts................................................................................................................. 3State Intercept..................................................................................................................................... 4Budgetary Process in the Commonwealth.......................................................................................... 4Additional Obligations ....................................................................................................................... 5
THE PROJECT ........................................................................................................................................ 5SOURCES AND USES OF FUNDS ....................................................................................................... 6THE TRUST AGREEMENT................................................................................................................... 6THE UNIVERSITY ................................................................................................................................. 6
General ............................................................................................................................................... 6Governing Board ................................................................................................................................ 9Administrative Officers ...................................................................................................................... 9Future Debt......................................................................................................................................... 9Privatized Housing Program............................................................................................................... 9Privatized Dining Program............................................................................................................... 10
TAX MATTERS .................................................................................................................................... 10General ............................................................................................................................................. 10Tax Treatment of Original Issue Discount ....................................................................................... 11Tax Treatment of Original Issue Premium....................................................................................... 12
CONTINUING DISCLOSURE ............................................................................................................. 12PENDING LITIGATION....................................................................................................................... 14APPROVAL OF LEGALITY ................................................................................................................ 14FINANCIAL ADVISOR........................................................................................................................ 14APPROVAL OF ISSUANCE OF BONDS............................................................................................ 14FINANCIAL STATEMENTS................................................................................................................ 14CERTIFICATE CONCERNING OFFICIAL STATEMENT................................................................ 14COMPLETENESS OF OFFICIAL STATEMENT ............................................................................... 15RATINGS............................................................................................................................................... 15UNDERWRITING................................................................................................................................. 15MISCELLANEOUS............................................................................................................................... 16
APPENDIX A: Information Pertaining to the University of KentuckyAPPENDIX B: Financial Statements of the University of Kentucky as of and for the year ended
June 30, 2015APPENDIX C: Summary of the Trust AgreementAPPENDIX D: Form of Bond Counsel OpinionAPPENDIX E: Book-Entry-Only SystemAPPENDIX F: Form of Continuing Disclosure Agreement
_____________________________
THIS PAGE INTENTIONALLY
LEFT BLANK_____________________________
OFFICIAL STATEMENT RELATING TO$107,470,000
UNIVERSITY OF KENTUCKYGENERAL RECEIPTS BONDS,
2016 SERIES A
and
$48,310,000UNIVERSITY OF KENTUCKYGENERAL RECEIPTS BONDS,
2016 TAXABLE SERIES B
INTRODUCTORY STATEMENT
This Official Statement, which includes the cover page and the Appendices appended hereto, isbeing distributed by the University of Kentucky (the “University”) to furnish pertinent information to allwho may become owners of its General Receipts Bonds, 2016 Series A (the “2016 Series A Bonds”) andGeneral Receipts Bonds, 2016 Taxable Series B (the “2016 Series B Bonds,” and together with the 2016Series A Bonds, the “Series 2016 Bonds”) being offered hereby pursuant to the provisions of Sections162.340 to 162.380 of the Kentucky Revised Statutes and Sections 58.010 to 58.140 of the KentuckyRevised Statutes, and pursuant to the terms of a Trust Agreement dated as of November 1, 2005 assupplemented by a Tenth Supplemental Trust Agreement dated as of February 1, 2016 Series between theUniversity and U.S. Bank National Association (together, the “Trust Agreement”).
The summaries and references to Sections of the Kentucky Revised Statutes and the TrustAgreement, as included in this Official Statement, do not purport to be comprehensive or definitive andare qualified in their entirety by reference to each such document. Unless otherwise defined herein,capitalized terms will have the meanings set forth in APPENDIX C.
THE BONDS
General
The Series 2016 Bonds will be dated their date of delivery, will be issued in fully registered formand in denominations of $5,000 or any integral multiples thereof and will mature as to principal and willbear interest as set forth on the inside cover page. Interest accruing on the Series 2016 Bonds will bepayable semiannually on April 1 and October 1 of each year, commencing October 1, 2016 to Holders ofrecord on the preceding March 15 and September 15, respectively.
Book-Entry-Only System
The Series 2016 Bonds initially will be issued solely in book-entry form to be held in the book-entry-only system maintained by The Depository Trust Company (“DTC”), New York, New York. Solong as such book-entry system is used, only DTC will receive or have the right to receive physicaldelivery of Series 2016 Bonds and, except as otherwise provided herein with respect to tenders byBeneficial Owners of Beneficial Ownership Interests, each as hereinafter defined, Beneficial Owners willnot be or be considered to be, and will not have any rights as, owners or Holders of the Series 2016 Bondsunder the Resolution and Series Resolution. For additional information about DTC and the book-entry-only system see “APPENDIX E – Book-Entry-Only System.”
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Redemption Provisions
Optional Redemption. The 2016 Series A Bonds maturing on and after April 1, 2027 shall besubject to optional redemption prior to their maturity on any date on or after April 1, 2025, in whole or inpart, in such order of maturity as may be selected by the University and by lot within a maturity at aredemption price equal to the principal amount of 2016 Series A Bonds to be redeemed, plus accruedinterest to the date of redemption.
The 2016 Series B Bonds maturing on and after April 1, 2026 shall be subject to optionalredemption prior to their maturity on any date on or after April 1, 2025, in whole or in part, in such orderof maturity as may be selected by the University and by lot within a maturity at a redemption price equalto the principal amount of 2016 Series B Bonds to be redeemed, plus accrued interest to the date ofredemption.
Mandatory Sinking Fund Redemption. The 2016 Series A Bonds maturing on April 1, 2039 aresubject to mandatory sinking fund redemption prior to maturity at a redemption price of 100% of theprincipal amount to be redeemed, plus accrued interest to the redemption date, on the dates and in theprincipal amounts as follows:
Date AmountApril 1, 2038 $6,285,000April 1, 2039 6,490,000*
*Maturity
The 2016 Series A Bonds maturing on April 1, 2041 are subject to mandatory sinking fundredemption prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plusaccrued interest to the redemption date, on the dates and in the principal amounts as follows:
Date AmountApril 1, 2040 $6,705,000April 1, 2041 6,970,000*
*Maturity
The 2016 Series A Bonds maturing on April 1, 2046 are subject to mandatory sinking fundredemption prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plusaccrued interest to the redemption date, on the dates and in the principal amounts as follows:
Date AmountApril 1, 2042 $7,250,000April 1, 2043 7,540,000April 1, 2044 7,840,000April 1, 2045 8,155,000April 1, 2046 8,480,000*
*Maturity
Selection of Bonds for Redemption. The University has directed the Trustee to notify DTC that inthe event less than all of any maturity of a series of Series 2016 Bonds are to be redeemed (includingmandatory sinking fund redemption), any such redemption shall be on a pro rata basis in a principalamount equal to authorized denominations of $5,000 or any integral multiple of such series of Series 2016Bonds. The University and the Trustee are not making any representation relating to, and do not have any
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responsibility or obligation with respect to, whether DTC will follow the direction to redeem Series 2016Bonds on a pro rata basis in the event of a partial redemption as described above. If a Series 2016 Bondthat is subject to redemption is in a denomination larger than $5,000, a portion of such Series 2016 Bondmay be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof, if theSeries 2016 Bond is one of the series and maturity or amount or part of the maturity or amount called forredemption. Upon surrender of any Series 2016 Bond for redemption in part, the Trustee and PayingAgent shall (authenticate and) deliver an exchange a Series 2016 Bond or Series 2016 Bonds of theapplicable series in an aggregate principal amount equal to the unredeemed portion of the Series 2016Bond so surrendered.
Notice of Redemption. The Trustee and Paying Agent shall give notice of any redemption bysending at least one such notice by United States mail, first class, postage prepaid, not less than 30 andnot more than 60 days prior to the date fixed for redemption to the registered owner of each Series 2016Bond to be redeemed in whole or in part, at the address shown on the bond register as of the date ofmailing of such notice. Such notice shall identify (i) by designation, letters, series, numbers or otherdistinguishing marks, the Series 2016 Bonds or portions thereof to be redeemed, (ii) the redemption priceto be paid, (iii) the date fixed for redemption and (iv) the place or places where the amounts due uponredemption are payable.
SECURITY FOR THE BONDS
Pledge of General Receipts
Each Bond is an “Obligation” under the Trust Agreement and the University has pledged itsGeneral Receipts as security for its payment obligations thereunder.
“General Receipts” means, as reported in the Financial Statements (having the designations, tothe extent not otherwise defined in the Trust Agreement, set forth in the Financial Statements or suchsuccessor designations that may hereafter be used in Financial Statements):
(a) certain operating and non-operating revenues of the University, being (i) StudentRegistration Fees, (ii) nongovernmental grants and contracts, (iii) recoveries of facilities andadministrative costs, (iv) sales and services, (v) Hospital Revenues, (vi) Housing and DiningRevenues, (vii) auxiliary enterprises – other auxiliaries, (viii) auxiliary enterprises – athletics, (ix)other operating revenues, (x) state appropriations (for general operations), (xi) gifts and grants,(xii) investment income, (xiii) other nonoperating revenues, and (xiv) other;
(b) but excluding (i) any receipts described in clause (a) which are contracts, grants,gifts, donations or pledges and receipts therefrom which, under restrictions imposed in suchcontracts, grants, gifts, donations or pledges, or, which as a condition of the receipt thereof or ofamounts payable thereunder are not available for payment of Debt Service Charges, (ii) federalgrants and contracts, (iii) state and local grants and contracts, (iv) federal appropriations, (v)county appropriations, (vi) professional clinical service fees, (vii) capital appropriations, (viii)capital grants and gifts, and (ix) additions to permanent endowments, including researchchallenge trust funds;
provided, however, that General Receipts may
(c) include any other receipts that may be designated as General Receipts from timeto time by a resolution of the Board of Trustees of the University (the “Board”) delivered to theTrustee; and
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(d) exclude any receipts not heretofore pledged, which may be designated from timeto time by a resolution of the Board delivered to the Trustee;
(e) exclude any receipts heretofore pledged, which may be designated from time totime by a resolution of the Board delivered to the Trustee and each Rating Service then rating anyObligations, but only if each such Rating Service confirms in writing to the University that theexclusion of any such receipt would not cause a reduction or withdrawal of the then current ratingon any Outstanding Obligations.
As described under “THE UNIVERSITY - Privatized Housing Program,” the University intendsto privatize the majority of its housing facilities for University students by the year 2019. As describedunder “THE UNIVERSITY” – Privatized Dining Program,” the University entered into a contract withAramark Enterprise Services, LLC to provide dining services for the Lexington campus beginning July 1,2014. Housing and Dining Revenues are pledged as security for Outstanding Obligations as a part of theUniversity’s pledge of General Receipts. Housing revenues were approximately $24.7 million in fiscalyear 2015 compared to $25.0 million in fiscal year 2013, prior to any privatization of the University’shousing facilities. Dining revenues were approximately $14.6 million in fiscal year 2015 compared to$18.8 million in fiscal year 2014, prior to any privatization of the University’s dining services. Referenceis made to APPENDIX B for information regarding the University’s revenues and expenses related toowning and operating the housing and dining facilities that will be replaced by the privatization ofhousing and dining for students.
State Intercept
If the University fails to make timely payment of any Bond, the Secretary of the Finance andAdministration Cabinet of the Commonwealth of Kentucky (the “Cabinet”) is obligated, pursuant to KRS164A.608, to apply to such payment, any funds that have been appropriated to the University that havenot yet been disbursed. Payments due on the Bonds are required to be deposited with the Trustee on theearlier of the date that is ten days prior to (i) the payment due date and (ii) the last day of any Fiscal Yearthat the remaining payments due on all outstanding Bonds for that Fiscal Year would exceed appropriatedfunds yet to be disbursed to the University for that Fiscal Year. If the amount required to pay debt serviceis not on deposit by that date, the Trustee is obligated under the Trust Agreement to immediately notifythe Secretary of the Cabinet of the default in payment. Under KRS 164A.608, the Secretary of theCabinet is required, within five days of the default, to remit the amount required to pay the amount due onany Bond to the Trustee from those undisbursed funds.
Budgetary Process in the Commonwealth
The General Assembly is required by the Kentucky Constitution to adopt measures providing forthe Commonwealth’s revenues and appropriations for each fiscal year. The Governor is required by lawto submit a biennial State Budget (the “State Budget”) to the General Assembly during the legislativesession held in each even numbered year. State Budgets have generally been adopted by the GeneralAssembly during those legislative sessions, which end in mid-April, to be effective upon the Governor’ssignature for appropriations commencing for a two-year period beginning the following July 1.
The University is required to submit its budget to the General Assembly for approval as a part ofthe State Budget. If a State Budget has not been enacted by the date principal of or interest on the Bondsis due, the University would not have the budgetary authority to make that principal or interest payment.The pledge of General Receipts by the University described herein is independent of the State Budgetprocess.
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Additional Obligations
The University has reserved the right to issue additional Obligations secured by a pledge ofGeneral Receipts. See “THE UNIVERSITY – Future Debt” and “APPENDIX C” – SUMMARY OFTHE TRUST AGREEMENT.”
THE PROJECT
The University of Kentucky’s Student Center wasoriginally constructed in 1938 and expanded in 1968 and1982. The Project will replace the outdated existing studentcenter with a state-of-the-art new facility, retaining thehistoric original 1938 portion of the building and preservingthe Alumni Gymnasium originally constructed in 1924. Therenovated and expanded facility will be comprised of over378,000 gross square feet to accommodate a growing studentenrollment and will include an atrium, recreation area,lounges, conference facilities, entertainment venues, retailspace, food service, bookstore, student organization spaceand administrative support offices.
Students will be able to go to the gym, buy a text book, eat on their meal plan, gather with otherstudents and attend classes all under one roof.
New Student Center view from Avenue of Champions
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SOURCES AND USES OF FUNDS
The sources and uses of funds in connection with the issuance of the 2016 Series A Bonds are asfollows:
Sources of FundsPrincipal Amount of Bonds $107,470,000.00Plus Net Original Issue Premium 5,147,482.40
Total Sources of Funds $112,617,482.40
Uses of FundsDeposit to 2016 Series A Project Fund $112,000,000.00Deposit to 2016 Series A Cost of Issuance Account 247,330.36Underwriter’s Discount 370,152.04
Total Uses of Funds $112,617,482.40
The sources and uses of funds in connection with the issuance of the 2016 Series B Bonds are asfollows:
Sources of FundsPrincipal Amount of Bonds $48,310,000.00Less Net Original Issue Discount (149,427.75)
Total Sources of Funds $48,160,572.25
Uses of FundsDeposit to 2016 Series B Project Fund $48,000,000.00Deposit to 2016 Series B Cost of Issuance Account 114,102.67Underwriter’s Discount 46,469.58
Total Uses of Funds $48,160,572.25
THE TRUST AGREEMENT
The terms and provisions of the Trust Agreement control both outstanding Obligations and allObligations that may be issued pursuant to the Trust Agreement, including the Series 2016 Bonds. Pleasesee APPENDIX C – “SUMMARY OF THE TRUST AGREEMENT.”
THE UNIVERSITY
General
Mission. The University of Kentucky is a public, land grant university dedicated to improvingpeople’s lives through excellence in education, research and creative work, service and health care. AsKentucky’s flagship institution, the University plays a critical leadership role by promoting diversity,inclusion, economic development and human well-being.
Vision. As Kentucky’s indispensable educational institution, we transform the lives of ourstudents and advance the Commonwealth we serve and beyond through our teaching and learning,diversity and inclusion, discovery, research and creativity, promotion of health, and deep communityengagement.
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Values. The University of Kentucky is guided by its core values:
Integrity Excellence Mutual respect and human dignity Diversity and inclusion Academic freedom Personal and institutional responsibility and accountability Shared governance A sense of community Work-life sensitivity Civic engagement Social responsibility
Background. Under provisions of the federal Morrill Land-Grant Colleges Act (1862), KentuckyState Agricultural and Mechanical College was established in 1865 as part of Kentucky University (nowTransylvania University). The College separated from Kentucky University in 1878 and was establishedon a 52 acre site (the University’s current location) donated by the city of Lexington. In 1908, the Collegewas re-named the State University, Lexington, Kentucky. In 1916 it became the University of Kentucky.
According to the Kentucky Revised Statutes (KRS) 164.125(2):
In carrying out its statewide mission, the University of Kentucky shall conduct statewideresearch and provide statewide services, including, but not limited to, agriculturalresearch and extension services, industrial and scientific research, industrial technologyextension services to Kentucky employers and research related to the doctoral,professional and postdoctoral programs offered within the University. The Universitymay establish and operate centers and utilize state appropriations and other resources tocarry out the necessary research and service activities throughout the state. TheUniversity may enter into joint research and service activities with other universities inorder to accomplish its statewide mission.
In 1997, the Kentucky General Assembly reformed the state’s public system of colleges anduniversities. According to the Kentucky Postsecondary Education Improvement Act of 1997:
The University of Kentucky is mandated to become a major comprehensive researchinstitution ranked nationally in the top twenty public universities by 2020.
The University’s Strategic Plan for 2015-2020 was adopted by the UK Board of Trustees at itsOctober 2015 retreat. The Strategic Plan is designed to measure the University’s progress by establishingspecific goals for teaching, research and service at the department, college and university level. The Planestablished five strategic objectives:
• Undergraduate Student Success• Graduate Education• Diversity and Inclusivity• Research and Scholarship• Outreach and Community Engagement
A Steering Committee has been appointed to implement action steps in each focus area. TheCommittee will develop metrics to measure progress against the Strategic Plan objectives.
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The University is identified as a “Research University (very high research activity)” by theCarnegie Commission on Higher Education. There are 108 such institutions in the United States (out ofapproximately 3,600 colleges and universities).
The University is accredited by the Commission on Colleges (CoC) of the Southern Associationof Colleges and Schools (SACS). This has been re-affirmed at approximately 10-year intervals since1915, with the next accreditation review scheduled to begin in 2022. In addition, several degree programsand individual units are accredited by agencies appropriate to specific professions or fields.
Students. In Fall 2014, the University had 30,131 undergraduate, graduate, and professionalstudents. They represent all 120 Kentucky counties, every state in the U.S. and over 100 countries.Enrollment has increased 3,692 students (14%) since Fall 2005.
Programs. The University offers more than 200 majors and degree programs in 17 academic andprofessional colleges that are supported by a comprehensive research library system. UK is one of onlyeight public universities nationally to house colleges of Agriculture, Engineering, Medicine and Pharmacyon a single contiguous campus.
Research. Total research expenditures, as reported to the National Science Foundation, totaled$328.2 million for fiscal year 2013-14, compared to $339.8 million in 2012-13. Research awardsreceived during fiscal year 2014-15 total $285.1 million, a 10% increase from the prior year amount of$259.3 million.
Outreach. As Kentucky’s flagship, land-grant university, UK engages citizens and communitiesacross the state in a myriad of ways, including extension offices in all 120 Kentucky counties; continuingeducation opportunities for teachers, lawyers and health care providers; clinics providing legal,pharmaceutical and health care assistance; and a multitude of research efforts aimed at Kentucky’s mostdifficult problems in economic development, health care, infrastructure and education.
Medical Centers. UK HealthCare, a trademarked brand used by the University of Kentucky forits health care services, is uniquely equipped to provide advanced subspecialty care to the people ofKentucky. The academic medical center and health system provides patient care on par – in terms of bothvolume and complexity – with the nation’s top 25% of academic medical centers. In October 2013, UKHealthCare was named a “Rising Star” by the University HealthSystem Consortium (UHC) for gainsmade in quality, safety, efficiency and equity of care. This and other notable achievements are listed athttp://ukhealthcare.uky.edu/quality/awards/.
UK HealthCare Hospital System operates two hospital units under one Joint CommissionAccreditation and two licenses in addition to ambulatory services. The major service units include AlbertB. Chandler Hospital, Good Samaritan Hospital and the Kentucky Clinic. The hospitals have a combinedtotal of 826 licensed beds with an average daily census of 698 patients. On a monthly basis, the systemprovides over 1,257 inpatient surgeries, 1,343 outpatient surgeries, 31,649 radiology procedures, 8,450emergency department visits and 111,307 hospital based outpatient clinic visits.
Under a management contract entered into with the Kentucky Cabinet for Health and FamilyServices (CHFS), UK HealthCare Hospital System also operates and manages Eastern State Hospital, a300,000 square-foot facility located on the University’s Coldstream Research Campus. Eastern StateHospital provides a modern setting for both acute and long-term inpatient psychiatric treatment for adultsliving within Fayette County and the 50 surrounding counties.
UK HealthCare’s Markey Cancer Center remains the state’s only cancer center designated by theNational Cancer Institute (NCI), which reflects UK’s position as a frontrunner in cancer treatment andresearch. UK HealthCare is one of an elite group of only 22 medical centers in the United States that have
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NCI designation, a federally funded Center on Aging, and a highly prized Clinical and TranslationalScience Award grant (CTSA).
UK HealthCare’s dramatic growth within the last decade is in large part the result of acommitment to support the state’s overall system of care by working hand-in-hand with local communityproviders to bring specialty care closer to the patient. These relationships take on different dimensions ineach locality (management agreements, affiliate networks, outreach, etc.) and support keeping less acutecare in the local community and smoothing the process for more complex, serious cases to be treated inUK HealthCare’s Lexington facilities. The goal is better care at all points of the continuum.
Libraries. UK operates a nationally recognized research library system, with the capstone beingthe world-class William T. Young Library. UK’s book endowment is the largest among publicuniversities. Its library network and technology provide extraordinary service to students in the collegesof Medicine, Law, Engineering, Fine Arts and other programs. Meanwhile, students, faculty andKentucky residents can use UK Libraries’ advanced technology to access the most up-to-date informationfrom online journals, government publications and private studies.
Governing Board
The governing body of the University is the Board consisting of twenty members, sixteenappointed by the Governor of the Commonwealth of Kentucky; two faculty members elected by thefaculty; one student member, who is the President of the student body, or if he or she is not a full-timestudent who maintains permanent residence in the Commonwealth, a full-time student who does maintainpermanent residency in the Commonwealth elected by the student body; and one member of theUniversity staff. Pursuant to Section 164.160 of the Kentucky Revised Statutes, the Board is a bodycorporate with the powers usually vested in corporations and, as such, subject to the statutes of theCommonwealth, has control and management of the University, together with the properties and fundsthereof. The University also has one ex officio board member who has been appointed as an honorarylifetime Trustee.
Administrative Officers
The President of the University is Dr. Eli Capilouto; the Provost is Dr. Timothy S. Tracy; theExecutive Vice President for Health Affairs is Dr. Michael Karpf; and the Executive Vice President forFinance and Administration is Mr. Eric N. Monday.
Future Debt
During the 2014 regular session of the Kentucky General Assembly, the University receivedauthorization to issue Bonds in the amount of $30 million to pay the costs of a building for the College ofLaw. It is anticipated that those Bonds will be issued within the next six months.
State Budgets may authorize other projects at the University to be directly funded from proceedsof Obligations, including Agency Fund Revenue Bonds issued by the State Property and BuildingsCommission or the Kentucky Asset/Liability Commission. In addition to the Series 2016 Bonds,Obligations may be issued to achieve debt service savings.
Privatized Housing Program
The University entered an agreement in April 2012 with a third party developer, Education RealtyTrust (EdR), to construct two four-story buildings, which comprise a 601 bed living-learning communitywith three classrooms, 16 active-learning spaces, Honor’s Program offices, and nine multipurposemeeting spaces on the former site of Haggin Field. The project, with an estimated cost of $25.2 million, is
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on land owned by the University and leased to EdR for a 50 year term with options for additional 10 yearand 15 year terms thereafter. At the conclusion of the initial 50 year term or the first renewal option, theUniversity will be required to purchase the buildings from EdR for an appraised value, unless the groundlease is renewed for the first or second optional extension. At the conclusion of the second optionalextension, the University is required to purchase the buildings for the greater of current net book value or$10. Ground rent is a percentage of gross revenues. The University accounts for the ground lease as anoperating lease. These facilities are subject to ad valorem tax. These two residence halls opened onAugust 16, 2013 for the Fall 2013 semester.
Phases II-A and II-B of the long-term housing plan agreements have also been signed with EdR.These phases include eight residence halls to be constructed between October 2012 and August 2015. TheUniversity received authorization from the Kentucky legislature for the new projects, which theCommonwealth must approve statutorily even though EdR, not the University, is financing the projects.
Phase II-A, which came on line in August 2014, included the development of five residence hallsat an approximate cost of $138.0 million and Phase II-B, which came on line in August 2015, includedthe construction of three residence halls at an approximate cost of $101.2 million. The 75 year term leasewith EdR includes maintenance standards for the facilities and parameters for the room rental rates for theduration. The University will receive a percentage of the total revenues and a share of the net income,after EdR achieves a minimum internal rate of return. These eight facilities are exempt from ad valoremtax. The University will account for the lease as a service concession arrangement in accordance withGASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements.
Phase II-C, expected to open in August 2016, includes residence halls at an approximate cost of$83.9 million. Phase III-A, expected to open in August 2017, will be a $74 million, 771 bed facility whichwill provide apartment style units for upper class, graduate and professional students.
Privatized Dining Program
In July 2014, the University entered into an approximately $250 million contract with AramarkEnterprise Services, LLC (Aramark), forming a 15 year public/private partnership. This partnership willtransform dining services offered to students, faculty, staff and the community served. Under thepartnership, several new food brands were located on campus starting in the Fall of 2014 and continuingthe next year. Aramark provides meals covered under the University’s student boarding plans anddeclining balance dollars. The contract allows for dining commissions to be paid to the University withguaranteed minimum amounts for each contract year. Aramark will provide $70 million in facilitiesinvestments, including $40 million in new facilities, subject to board approval, to be completed by fiscalyear 2017-2018. As part of these facilities investments, Aramark constructed a new K Lair Grill at HagginHall, made substantial upgrades to the Student Center Food Court and constructed “The 90” diningfacility for the Fall 2015 semester.
TAX MATTERS
General
In the opinion of Bond Counsel for the Series 2016 Bonds, based upon an analysis of existinglaws, regulations, rulings and court decisions, interest on the 2016 Series A Bonds is excludible fromgross income for federal income tax purposes and interest on the 2016 Series A Bonds is not a specificitem of tax preference under Section 57 of the Internal Revenue Code of 1986 (the “Code”) for purposesof the federal individual or corporate alternative minimum taxes. Interest on the Series 2016 B Bonds isnot excludable from gross income for Federal income tax purposes. Furthermore, Bond Counsel for theSeries 2016 Bonds is of the opinion that interest on the Series 2016 Bonds is exempt from income
11
taxation by the Commonwealth and the Series 2016 Bonds are exempt from ad valorem taxation by theCommonwealth and any of its political subdivisions.
A copy of the opinion of Bond Counsel for the Series 2016 Bonds is set forth in APPENDIX D.
The Code imposes various restrictions, conditions, and requirements relating to the exclusionfrom gross income for Federal income tax purposes of interest on obligations such as the 2016 Series ABonds. The University has covenanted to comply with certain restrictions designed to ensure that intereston the 2016 Series A Bonds will not be includable in gross income for Federal income tax purposes.Failure to comply with these covenants could result in interest on the 2016 Series A Bonds beingincludable in gross income for Federal income tax purposes and such inclusion could be requiredretroactively to the date of issuance of the 2016 Series A Bonds. The opinion of Bond Counsel assumescompliance with these covenants. However, Bond Counsel has not undertaken to determine (or to informany person) whether any actions taken (or not taken) or events occurring (or not occurring) after the dateof issuance of the 2016 Series A Bonds may adversely affect the Federal tax status of the interest on the2016 Series A Bonds.
Certain requirements and procedures contained or referred to in the Indenture and other relevantdocuments may be changed and certain actions (including, without limitation, defeasance of the 2016Series A Bonds) may be taken or omitted under the circumstances and subject to the terms and conditionsset forth in such documents. Bond Counsel expresses no opinion as to 2016 Series A Bonds or theinterest thereon if any such change occurs or action is taken or omitted upon the advice or approval ofbond counsel other than Dinsmore & Shohl LLP.
Although on the date the Series 2016 Bonds are issued, Bond Counsel will render an opinion thatinterest on the 2016 Series A Bonds is excludible from gross income for Federal income tax purposes andthat interest on the Series 2016 Bonds is excludible from gross income for Kentucky income tax purposes,the ownership or disposition of, or the accrual or receipt of interest on, the Series 2016 Bonds mayotherwise affect a Holder’s Federal, state or local tax liabilities. The nature and extent of these other taxconsequences may depend upon the particular tax status of the Holder or the Holder’s other items ofincome or deduction. For example, such effects may include, without limitation, increasing the federaltax liability of certain foreign corporations subject to the branch profits tax imposed by Section 884 of theCode, increasing the federal tax liability of certain insurance companies, under Section 832 of the Code,increasing the federal tax liability and affecting the status of certain S Corporations subject to Sections1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of SocialSecurity or the Railroad Retirement benefits under Section 86 of the Code and limiting the amount of theEarned Income Credit under Section 32 of the Code that might otherwise be available. Ownership of anyof the 2016 Series A Bonds may also result in the limitation of interest and certain other deductions forfinancial institutions and certain other taxpayers, pursuant to Section 265 of the Code. Finally, residenceof the holder of the Series 2016 Bonds in a state other than Kentucky or being subject to tax in a stateother than Kentucky may result in income or other tax liabilities being imposed by such states or theirpolitical subdivisions based on the interest or other income from the Series 2016 Bonds. Bond Counselexpresses no opinions regarding any tax consequences other than what is set forth in its opinion and eachHolder or potential Holder is urged to consult with tax counsel with respect to the effects of purchasing,holding or disposing of the Series 2016 Bonds on the tax liabilities of the individual or entity.
The University has not designated the 2016 Series A Bonds as “qualified tax-exempt obligations”pursuant to Section 265 of the Code.
Tax Treatment of Original Issue Discount
The Series 2016 Bonds that have an interest rate that is lower than the yield on the Series 2016Bonds and Series 2016 Bonds that have a maturity amount that is greater than their initial principal
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amount, all as shown on the inside cover page hereto (the “Discount Bonds”), are being offered and soldto the public at an original issue discount (“OID”). OID is the excess of the stated redemption price of abond at maturity (the face amount) over the “issue price” of such bond. The issue price is the initialoffering price to the public (other than to bond houses, brokers or similar persons acting in the capacity ofunderwriters or wholesalers) at which a substantial amount of bonds of the same maturity are soldpursuant to that initial offering. For federal income tax purposes, OID on each bond will accrue over theterm of the bond, and for the Discount Bonds, the amount of accretion will be based on a single rate ofinterest, compounded semiannually (the “yield to maturity”). The amount of OID that accrues duringeach semi-annual period will do so ratably over that period on a daily basis. With respect to an initialpurchaser of a Discount Bond at its issue price, the portion of OID that accrues during the period that suchpurchaser owns the Discount Bond is added to such purchaser’s tax basis for purposes of determininggain or loss at the maturity, redemption, sale or other disposition of that Discount Bond and thus, inpractical effect, is treated as stated interest, which is (with respect to 2016 Series A Bonds) excludablefrom gross income for federal income tax purposes.
Holders of Discount Bonds should consult their own tax advisors as to the treatment of OID andthe tax consequences of the purchase of such Discount Bonds other than at the issue price during theinitial public offering and as to the treatment of OID for state tax purposes.
Tax Treatment of Original Issue Premium
“Acquisition Premium” is the excess of the cost of a bond over the stated redemption price ofsuch bond at maturity or, for bonds that have one or more earlier call dates, the amount payable at thenext earliest call date. The Series 2016 Bonds that have an interest rate that is greater than the yield, asshown on the inside cover page hereto (the “Premium Bonds”), are being initially offered and sold to thepublic at an Acquisition Premium. For federal income tax purposes, the amount of Acquisition Premiumon the 2016 Series A Bonds must be amortized and will reduce the Holder’s adjusted basis in those 2016Series A Bonds. However, no amount of amortized Acquisition Premium on 2016 Series A Bonds maybe deducted in determining Holder’s taxable income for federal income tax purposes. The amount of anyAcquisition Premium paid on the Premium Bonds, or on any of the Series 2016 Bonds, that must beamortized during any period will be based on the “constant yield” method, using the original Holder’sbasis in such bonds and compounding semiannually. This amount is amortized ratably over thatsemiannual period on a daily basis.
Holders of any Series 2016 Bonds, including any Premium Bonds, purchased at an AcquisitionPremium should consult their own tax advisors as to the actual effect of such Acquisition Premium withrespect to their own tax situation and as to the treatment of Acquisition Premium for state tax purposes.
CONTINUING DISCLOSURE
In accordance with Securities and Exchange Commission Rule 15c2-12 (the “Rule”), theUniversity (the “Obligated Person”) will agree, pursuant to a Continuing Disclosure Agreement to bedated the first day of the month in which the Series 2016 Bonds are sold (the “Disclosure Agreement”), tobe delivered on the date of delivery of the Series 2016 Bonds, to cause the following information to beprovided:
(a) to the Municipal Securities Rulemaking Board (the “MSRB”), certain annual financialinformation and operating data, including audited financial statements prepared in accordance withgenerally accepted accounting principles, generally consistent with the information contained inAppendices A and B; such information shall be provided on or before 180 days following the fiscal yearending on the preceding June 30, commencing with the fiscal year ending June 30, 2016;
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(b) to the MSRB, in a timely manner, not in excess of ten business days after the occurrenceof the event, notice of the occurrence of the following events with respect to the Series 2016 Bonds; and
(i) Principal and interest payment delinquencies;(ii) Non-payment related defaults, if material;(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;(v) Substitution of credit or liquidity providers, or their failure to perform;(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or othermaterial notices or determinations with respect to the tax status of the security, or othermaterial events affecting the tax-exempt status of the security;
(vii) Modifications to rights of security holders, if material;(viii) Bond calls, if material, and tender offers (except for mandatory scheduled redemptions
not otherwise contingent upon the occurrence of an event);(ix) Defeasances;(x) Release, substitution or sale of property securing repayment of the securities, if material;(xi) Rating changes;(xii) Bankruptcy, insolvency, receivership or similar event of the obligated person (Note: For
the purposes of this event, the event is considered to occur when any of the followingoccur: The appointment of a receiver, fiscal agent or similar officer for an obligatedperson in a proceeding under the U.S. Bankruptcy Code or in any other proceeding understate or federal law in which a court or governmental authority has assumed jurisdictionover substantially all of the assets or business of the obligated person, or if suchjurisdiction has been assumed by leaving the existing governing body and officials orofficers in possession but subject to the supervision and orders of a court or governmentalauthority, or the entry of an order confirming a plan of reorganization, arrangement orliquidation by a court or governmental authority having supervision or jurisdiction oversubstantially all of the assets or business of the obligated person);
(xiii) The consummation of a merger, consolidation, or acquisition involving an obligatedperson or the sale of all or substantially all of the assets of the obligated person, otherthan in the ordinary course of business, the entry into a definitive agreement to undertakesuch an action or the termination of a definitive agreement relating to any such actions,other than pursuant to its terms, if material; and
(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, ifmaterial; and
(c) to the MSRB, notice of a failure (of which the Obligated Persons have knowledge) of anObligated Person to provide the required Annual Financial Information on or before the date specified inthe Disclosure Agreement.
The Disclosure Agreement provides a Holder of the Series 2016 Bonds, including BeneficialOwners of the Series 2016 Bonds, with certain enforcement rights in the event of a failure by theUniversity to comply with the terms thereof; however, default under the Disclosure Agreement does notconstitute an event of default under the Resolutions. The Disclosure Agreement may also be amended orterminated under certain circumstances in accordance with the Rule as more fully described therein.Holders of the Series 2016 Bonds are advised that the Disclosure Agreement, the form of which isobtainable from the Financial Advisor, should be read in its entirety for more complete informationregarding its contents.
The University has complied with its continuing disclosure requirements as of the date of thisOfficial Statement.
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Financial information regarding the University may be obtained from the Treasurer, University ofKentucky, 301 Peterson Service Building, South Limestone Street, Lexington, Kentucky 40506-0005.
PENDING LITIGATION
There is no controversy or litigation of any nature now pending or threatened restraining orenjoining the issuance, sale, execution or delivery of the Series 2016 Bonds, or in any way contesting oraffecting the validity of the Series 2016 Bonds or any proceedings of the University taken with respect tothe issuance of sale thereof, or the pledge or application of any moneys or security provided for thepayment of the Series 2016 Bonds or the due existence or powers of the University.
APPROVAL OF LEGALITY
Legal matters incident to the authorization, issuance, sale and delivery of the Series 2016 Bondsare subject to the approval of Dinsmore & Shohl LLP, Covington, Kentucky, Bond Counsel to theUniversity. The approving legal opinion of Bond Counsel will be printed on the Series 2016 Bonds andwill, in the case of the 2016 Series A Bonds, contain a statement of tax exemption as represented herein.Bond Counsel has reviewed the information herein pertaining to the Series 2016 Bonds under theheadings “THE BONDS,” “SECURITY FOR THE BONDS,” “THE TRUST AGREEMENT,” “TAXMATTERS,” APPENDIX C, APPENDIX D and APPENDIX F, and is of the opinion that suchinformation is a fair summary of the principal provisions of the instruments and information thereindescribed. Said firm has not otherwise participated in the preparation of the Official Statement or theAppendices attached hereto and has not verified the accuracy or completeness of the informationcontained under any heading other than those stated above, nor of any financial information, enrollmentnumbers, projections, or computations relating thereto, and therefore, can make no representation withrespect to such information. A certification as to the matters set forth under “PENDING LITIGATION”will be delivered by the University with the Series 2016 Bonds.
FINANCIAL ADVISOR
J.J.B. Hilliard, W.L. Lyons, LLC, Louisville, Kentucky, has acted as Financial Advisor to theUniversity in connection with the issuance of the Series 2016 Bonds and will receive a fee, payable fromSeries 2016 Bond proceeds, for its services as Financial Advisor.
APPROVAL OF ISSUANCE OF BONDS
Pursuant to Chapter 42 of the Kentucky Revised Statutes, issuance of the Series 2016 Bonds mustbe approved by the Office of Financial Management of the Finance and Administration Cabinet of theCommonwealth of Kentucky.
FINANCIAL STATEMENTS
The financial statements of the University as of and for the year ended June 30, 2015, included inthis Official Statement in APPENDIX B, have been audited by BKD LLP, independent auditors, as statedin their report appearing herein. The University did not request BKD, LLP to perform any updatingprocedures subsequent to the date of its audit report on the financial statements in APPENDIX B.
CERTIFICATE CONCERNING OFFICIAL STATEMENT
Concurrently with the delivery of the Series 2016 Bonds, the Treasurer will certify that, to thebest of her knowledge, the Official Statement did not as of the date of delivery of the Series 2016 Bonds,contain any untrue statements of a material fact or omit to state a material fact which should be includedtherein for the purpose for which the Official Statement is to be used, or which is necessary in order to
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make the statements contained therein, in light of the circumstances under which they were made, notmisleading in any material respect.
COMPLETENESS OF OFFICIAL STATEMENT
The Board has approved and caused this Official Statement to be executed and delivered by itsChair. This Official Statement is deemed final by the Board for purposes of Securities and ExchangeCommission Rule 15c2-12(b)(1) as of the date hereof.
The financial information supplied by the Board and reported in APPENDIX A and APPENDIXB herein is represented by the Board to be correct. With respect to APPENDIX A, accounts required byFederal and State laws, rules and regulations to be audited annually by independent certified publicaccountants have been so audited and the financial information extracted from the annual audits andpresented herein is incomplete to the degree that accounts not required to be so audited have not beenincluded in the annual audits contained in APPENDIX B.
RATINGS
Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a Divisionof The McGraw-Hill Companies, Inc. (“S&P”) have assigned the Series 2016 Bonds the respectiveratings of “Aa2” and “AA.” Each rating reflects only the views of the respective Rating Agency.Explanations of the significance of the ratings may be obtained from each Rating Agency as follows:Moody’s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York10007, (212) 553-0300; and Standard & Poor’s Ratings Services, a Division of the McGraw-HillCompanies, Inc., 55 Water Street, New York, New York 10041 (212) 438 2124.
A rating is not a recommendation to buy, sell or hold the Series 2016 Bonds. There is noassurance that such ratings will continue for any given period of time or that they may not be lowered orwithdrawn entirely. Any such downward change in or withdrawal of such ratings could have an adverseeffect on the market price of the Series 2016 Bonds.
UNDERWRITING
The 2016 Series A Bonds are to be purchased by Hutchinson, Shockey, Erley & Co. (the “2016Series A Underwriter”). The 2016 Series A Underwriter has agreed, subject to certain conditions, topurchase the 2016 Series A Bonds at an aggregate purchase price of $112,247,330.36 (which is equal tothe principal amount of the 2016 Series A Bonds plus net original issue premium of $5,147,482.40 andless underwriting discount of $370,152.04). The 2016 Series A Underwriter will be obligated to purchaseall of the 2016 Series A Bonds if any are purchased. The 2016 Series A Underwriter has advised theUniversity that it intends to make a public offering of the 2016 Series A Bonds at the initial publicoffering yields set forth on the inside cover page hereof, provided, however, that the 2016 Series AUnderwriter has reserved the right to make concessions to dealers and to change such initial publicoffering prices as the 2016 Series A Underwriter shall deem necessary in connection with the marketingof the 2016 Series A Bonds.
The 2016 Series B Bonds are to be purchased by J.P. Morgan Securities, LLC (the “2016 Series BUnderwriter”). The 2016 Series B Underwriter has agreed, subject to certain conditions, to purchase the2016 Series B Bonds at an aggregate purchase price of $ 48,114,102.67 (which is equal to the principalamount of the 2016 Series B Bonds less net original issue discount of $149,427.75 and less underwritingdiscount of $46,469.58). The 2016 Series B Underwriter will be obligated to purchase all of the 2016Series B Bonds if any are purchased. The 2016 Series B Underwriter has advised the University that itintends to make a public offering of the 2016 Series B Bonds at the initial public offering yields set forthon the inside cover page hereof, provided, however, that the 2016 Series B Underwriter has reserved the
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right to make concessions to dealers and to change such initial public offering prices as the 2016 Series BUnderwriter shall deem necessary in connection with the marketing of the 2016 Series B Bonds.
MISCELLANEOUS
All quotations from, and summaries and explanations of, the Kentucky Revised Statutes, theResolution and the Series Resolution, contained herein do not purport to be complete, and reference ismade to such laws and documents for full and complete statements of their provisions. The Appendicesattached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the OfficialStatement, Resolution or the Series Resolution may be obtained from J.J.B. Hilliard, W.L. Lyons, LLC,500 West Jefferson Street, Suite 700, Louisville, Kentucky 40202, Attention Ms. Tammey Bibb (502)588-1124.
Any statements in this Official Statement involving matters of opinion, whether or not expresslyso stated, are intended as such and not as representations of fact. Except when otherwise indicated, theinformation set forth herein has been obtained from the University and has not been verified as toaccuracy or completeness by, and is not to be construed as a representation of, the Financial Advisor orBond Counsel. This Official Statement is not to be construed as a contract or agreement between theUniversity and the purchasers or owners of any of the Series 2016 Bonds.
UNIVERSITY OF KENTUCKY
By: /s/ Edward Britt BrockmanChair, Board of Trustees
Attest:
UNIVERSITY OF KENTUCKY
By: /s/ Kelly Sullivan HollandSecretary, Board of Trustees
A P P E N D IX A
IN FO RM A TIO N P E RTA IN IN G TO TH E UN IV E RS ITY O F KE N TUC KY
_____________________________
THIS PAGE INTENTIONALLY
LEFT BLANK_____________________________
APPENDIX A
UNIVERSITY OF KENTUCKY
FISCAL YEAR 2016 BUDGET
The Fiscal Year 2016 budget for the University is $3,368,391,000, an increase of $351,726,000 from the final Fiscal Year 2015 budget.
OPERATIONS
Summary of Revenues, Expenses and Changes in Net Position
The following is a summary of the University's revenues, expenses and changes in net position for the most recent three fiscal years available:
2013 2014 2015Operating Revenue 1,982,845$ 2,149,171$ 2,462,145$ Operating Expenses 2,299,918 2,441,583 2,609,253 Operating Loss (317,073) (292,412) (147,108)
Non-operating Revenue, including stateappropriations 506,868 573,758 460,514 Increase in Net Position 189,795$ 281,346$ 313,406$
Fiscal Year(Dollars in Thousands)
During 2014, the University adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Adoption of GASB Statement No. 65 requires that bond issuance costs are expensed when incurred and reclassification of deferred gains on refunding debt from long-term liabilities to deferred inflows of resources, resulting in a decrease of approximately $3.7 million in beginning net position as of July 1, 2012 and an increase in the change in net position of approximately $213,000 for the year ended June 30, 2013 for the University.
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Enrollment
The following schedule indicates the Fall Semester head count and full-time equivalent enrollment at the University for each of the academic years 2006-07 through 2015-16. The full-time enrollment calculation is made in accordance with the method used by the United States Department of Education.
Academic Year
Head Count
Full-Time
Equivalent1
2006-07 26,382 23,2912007-08 25,856 23,4102008-09 26,054 23,9352009-10 26,295 24,1642010-11 27,108 24,9912011-12 27,226 25,2552012-13 28,034 25,3072013-14 28,435 25,6582014-15 29,203 26,4072015-16 29,715 27,133
Data from prior years has been slightly revised to conform with IPEDS. 1 Full-time and part-time enrollment equated to full-time enrollment. In reviewing enrollment projections, consideration has been given to planning for adequate academic and housing accommodations for future enrollments. The programs will be developed so that academic and housing facilities will not be limiting factors on the enrollment growth projected. The enrollment projection for the University is set forth in the following tabulations:
Fall Semester Student
Academic Year Enrollment (Full-Time Equivalent)1
2016-2017 27,5002017-2018 27,8002018-2019 27,9002019-2020 28,0002020-2021 28,000
1 Projections based on 2015-2016 data Approximately 32.4% of the students enrolled in the University are non-residents of Kentucky.
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Admissions Information – Fall Semester Undergraduate Admissions
The following is a summary of certain undergraduate admission information for the most recent five academic years:
2011 2012 2013 2014 2015
Number of Applications 15,153 18,802 19,810 20,677 22,521 Number Approved for Enrollment 10,362 12,655 13,592 14,930 16,685 Number Enrolled 4,139 4,647 4,684 5,185 5,217 Average ACT Scores 25.4 25.5 25.3 25.5 25.5
(First time full-time Freshman)
State Appropriations
The following is a summary of the University's General Fund state appropriations for the most recent ten fiscal years:
1 Includes $4,682,400 in FY10 and $1,370,600 in FY11 for debt service. The amount of funds appropriated has been based in part on the debt service on the University's outstanding Consolidated Educational Buildings Revenue Bonds. The amounts set forth above, except for Fiscal Year 2010, are amounts actually received, which, in certain years, have been less than amounts included in the original state budget for that year. The Board presently intends, but is not obligated, to continue to seek to have funds appropriated by the General Assembly to partially support the operations of the University. THE GENERAL ASSEMBLY IS NOT NOW OBLIGATED, NOR WILL THERE BE AN OBLIGATION IN THE FUTURE TO MAKE APPROPRIATIONS TO THE UNIVERSITY. IN ADDITION, THERE CAN BE NO ASSURANCE THAT IN THE PERFORMANCE OF HIS OR HER OBLIGATION TO BALANCE THE STATE BUDGET ANNUALLY, THE GOVERNOR WILL NOT REDUCE OR ELIMINATE ANY APPROPRIATIONS WHICH ARE MADE.
Fiscal Year Appropriation
2007 319,859,300$ 2008 327,155,100 2009 315,161,856 2010 294,137,000
1
2011 296,472,000 1
2012 297,580,000 2013 283,869,000 2014 283,869,000 2015 279,611,000
2016 279,611,000
A-4
Grants and Contracts
The following is a summary of the University's grant and contract amounts for the most recent ten fiscal years:
Student Financial Aid
The following is a summary of the University's student financial aid for the most recent ten fiscal years:
Data has been revised to reflect figures by fiscal year rather than academic year.
Fiscal Year Amount
2006 270,278,010$ 2007 287,185,815 2008 290,923,063 2009 295,264,530 2010 318,885,833 2011 331,372,702 2012 330,658,473 2013 286,617,576 2014 250,680,999
2015 258,662,195
Fiscal Year Amount
2006 197,812,993$ 2007 197,626,673 2008 227,899,102 2009 252,583,415 2010 284,204,751 2011 309,920,200 2012 353,618,997 2013 346,675,743 2014 382,786,242 2015 390,088,788
A-5
Comparative Report of Student Financial Aid
The following is a comparative summary of the University's student financial aid for the most recent two fiscal years:
2014 2015
Scholarships & Grants 115,425,749$ 128,449,261$
Federal Grants:
Pell 22,424,181 23,500,429 Supplemental Eduational Opportunity Grant (SEOG) 437,946 487,500 Teacher Education Assistance for College and Higher Education Grant Program (TEACH) 62,040 49,550 Federal Work Study 1,030,509 1,014,967
Financial Aid from Outside Agencies:State Grants 26,738,705 26,774,687
Loans:National Direct Student Loans (Perkins) 4,679,854 3,057,201 Federal Direct Loans 191,361,548 183,021,813 Health Professions Loans 418,500 440,000 Loans-Outside Agencies 19,003,918 22,335,599 Other Loans (Institutional) 1,203,292 957,781
Total 382,786,242$ 390,088,788$
Fiscal Year
Data has been revised to reflect figures by fiscal year rather than academic year.
A-6
HealthCare Hospital System Operating Results and Financial Condition
The following is a summary of the University HealthCare Hospital System’s Statement of Revenue, Expenses and Changes in Net Position followed by certain operating information for the most recent three fiscal years:
During 2014, the System adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Adoption of GASB Statement No. 65 requires that bond issuance costs are expensed when incurred and reclassification of deferred gains on refunding debt from long-term liabilities to deferred inflows of resources, resulting in an increase in the change in net position of approximately $131,000 for the year ended June 30, 2013 for the System.
Certain Operating Information2013 2014 2015
Average Licensed Beds 825 825 826 Available Beds 718 757 816 Patient Days 210,576 228,783 251,334
Patient Days Equivalents 1
334,456 347,113 407,767 Admissions 35,565 35,303 37,073 Discharges 35,511 35,180 37,043
Average Lenth of Stay (days) 5.93 6.50 6.78 Occupancy 80.35% 82.80% 84.39%Emergency Visits 88,752 91,146 101,395 Outpatient Visits with Hospital Charge 368,223 428,582 479,782
1 Total patient activity computed by converting outpatient activity to an inpatient equivalent.
2013 2014 2015
Operating Revenue 951,450$ 1,115,007$ 1,329,133$ Operating Expenses 886,208 1,013,572 1,129,905
Operating Income 65,242 101,435 199,228 Net Non-Operating Revenue (expenses) 14,350 29,524 (5,863)
Net Income before other revenues, expenses, gains or losses 79,592 130,959 193,365 Transfer to University (15,698) (9,238) (1,332)
Increase in Net Position 63,894$ 121,721$ 192,033$
(Dollars in Thousands)
A-7
OUTSTANDING BONDS OF THE UNIVERSITY OF KENTUCKY
The University has the following bonds outstanding as of January 20, 2016:
Obligations Outstanding Under the General Receipts Trust Agreement
Year of Issue Amount of Issue
Amount Outstanding
Year of Final
Maturity
Kentucky Asset/Liability Commission
General ReceiptsRefunding Project Notes, 2006 Series A 2006 $66,305,000 $35,985,000 2022Project Notes, 2007 Series A 2007 77,905,000 7,580,000 2017Project Notes, 2007 Series B 2007 80,245,000 9,190,000 2018
Total ALCo Notes $224,455,000 $52,755,000
University of Kentucky
General Receipts Bonds2006 Series A Bonds 2006 $24,325,000 $1,150,000 20162009 Series A Bonds 2009 33,350,000 21,130,000 20242009 Series B Bonds 2009 100,605,000 100,605,000 20392010 Series A Bonds 2010 12,370,000 8,615,000 2024
2010 Series B Bonds (1) 2010 12,955,000 12,955,000 2024
2012 Series A Bonds 2012 25,370,000 19,855,000 20242014 Series A Bonds 2014 190,255,000 190,255,000 20442014 Series B Bonds 2014 38,665,000 38,665,000 20342014 Series C Bonds 2014 10,055,000 10,055,000 20202014 Series D Bonds 2014 88,145,000 82,745,000 20252015 Series A Bonds 2015 141,905,000 141,905,000 20452015 Series B Bonds 2015 97,440,000 97,440,000 20272015 Series C Bonds 2015 19,695,000 19,180,000 2026
Total University of Kentucky Bonds $795,135,000 $744,555,000
Kentucky Association of Counties Lease(Samaritan Hospital) 2009 $35,000,000 $26,460,000 2028
Total Under Trust Agreement $1,054,590,000 $823,770,000
(1) The 2010 Series B are Taxable Qualified Energy Conservation Bonds that require the University to make annual sinking fund payments to an account held with the Trustee.
A-8
ESTIMATED DEBT SERVICE REQUIREMENTS AS OF JANUARY 20, 2016
DE
BT
SE
RV
ICE
RE
QU
IRE
ME
NT
S A
S O
F J
AN
UA
RY
20,
201
6
Yea
r E
ndin
g Ju
ne 3
0P
rinc
ipal
(1)
Inte
rest
Fed
eral
Subs
idy
(2)
Exi
stin
g D
ebt
Serv
ice
Pri
ncip
alIn
tere
stD
ebt
Serv
ice
Pri
ncip
alIn
tere
stD
ebt
Serv
ice
Pri
ncip
alIn
tere
stF
eder
al
Subs
idy
(2)
Tot
al D
ebt
Serv
ice
2016
$8,4
30,0
00$1
8,33
5,15
6($
2,04
2,53
4)$2
4,72
2,62
2-
-
-
-
-
-
$8
,430
,000
$18,
335,
156
($2,
042,
534)
$24,
722,
622
2017
34,4
05,0
0035
,806
,429
(2,4
87,3
54)
67,7
24,0
75-
$4,7
54,3
28$4
,754
,328
$900
,000
$1,3
11,9
21$2
,211
,921
35,3
05,0
0041
,872
,679
(2,4
87,3
54)
74,6
90,3
2520
1838
,865
,000
34,2
49,8
66(2
,458
,514
)70
,656
,352
-
4,
164,
375
4,16
4,37
53,
290,
000
1,14
5,75
34,
435,
753
42,1
55,0
0039
,559
,994
(2,4
58,5
14)
79,2
56,4
8020
1940
,185
,000
32,5
60,2
57(2
,404
,613
)70
,340
,644
-
4,
164,
375
4,16
4,37
53,
540,
000
1,11
6,96
64,
656,
966
43,7
25,0
0037
,841
,597
(2,4
04,6
13)
79,1
61,9
8520
2041
,595
,000
30,7
69,8
67(2
,345
,065
)70
,019
,802
-
4,
164,
375
4,16
4,37
53,
580,
000
1,07
2,71
64,
652,
716
45,1
75,0
0036
,006
,958
(2,3
45,0
65)
78,8
36,8
9220
2143
,770
,000
28,8
97,4
26(2
,281
,606
)70
,385
,820
-
4,
164,
375
4,16
4,37
53,
635,
000
1,01
9,01
64,
654,
016
47,4
05,0
0034
,080
,816
(2,2
81,6
06)
79,2
04,2
1120
2243
,412
,433
26,9
03,8
66(2
,213
,674
)68
,102
,625
-
4,
164,
375
4,16
4,37
53,
700,
000
955,
403
4,65
5,40
347
,112
,433
32,0
23,6
44(2
,213
,674
)76
,922
,403
2023
44,6
95,0
0024
,838
,209
(2,1
41,3
06)
67,3
91,9
02-
4,16
4,37
54,
164,
375
3,78
0,00
087
6,77
84,
656,
778
48,4
75,0
0029
,879
,362
(2,1
41,3
06)
76,2
13,0
5520
2440
,320
,000
22,8
02,7
50(2
,064
,852
)61
,057
,898
-
4,
164,
375
4,16
4,37
53,
870,
000
787,
003
4,65
7,00
344
,190
,000
27,7
54,1
28(2
,064
,852
)69
,879
,276
2025
40,3
60,0
0020
,567
,870
(1,7
40,7
17)
59,1
87,1
53-
4,16
4,37
54,
164,
375
3,96
5,00
069
0,25
34,
655,
253
44,3
25,0
0025
,422
,498
(1,7
40,7
17)
68,0
06,7
8120
2637
,445
,000
18,5
26,9
89(1
,420
,221
)54
,551
,767
-
4,
164,
375
4,16
4,37
54,
075,
000
580,
423
4,65
5,42
341
,520
,000
23,2
71,7
86(1
,420
,221
)63
,371
,565
2027
36,8
55,0
0016
,864
,611
(1,3
47,8
02)
52,3
71,8
09$9
00,0
004,
164,
375
5,06
4,37
53,
295,
000
461,
433
3,75
6,43
341
,050
,000
21,4
90,4
19(1
,347
,802
)61
,192
,616
2028
36,6
90,0
0015
,244
,396
(1,2
72,8
09)
50,6
61,5
8790
0,00
04,
141,
875
5,04
1,87
53,
415,
000
360,
276
3,77
5,27
641
,005
,000
19,7
46,5
47(1
,272
,809
)59
,478
,738
2029
20,8
85,0
0014
,047
,917
(1,1
95,1
47)
33,7
37,7
7090
0,00
04,
105,
875
5,00
5,87
53,
565,
000
250,
313
3,81
5,31
325
,350
,000
18,4
04,1
05(1
,195
,147
)42
,558
,958
2030
19,7
60,0
0013
,157
,335
(1,1
14,7
23)
31,8
02,6
123,
380,
000
4,06
9,87
57,
449,
875
1,30
0,00
013
0,17
3
1,
430,
173
24,4
40,0
0017
,357
,383
(1,1
14,7
23)
40,6
82,6
6020
3120
,565
,000
12,2
52,7
33(1
,028
,622
)31
,789
,111
3,28
5,00
03,
900,
875
7,18
5,87
51,
550,
000
85,0
63
1,
635,
063
25,4
00,0
0016
,238
,670
(1,0
28,6
22)
40,6
10,0
4820
3221
,260
,000
11,4
57,2
03(9
36,5
53)
31,7
80,6
504,
135,
000
3,80
2,32
57,
937,
325
850,
000
30,8
13
88
0,81
326
,245
,000
15,2
90,3
40(9
36,5
53)
40,5
98,7
8720
3322
,025
,000
10,5
93,7
23(8
40,9
92)
31,7
77,7
305,
225,
000
3,59
5,57
58,
820,
575
-
-
-
27
,250
,000
14,1
89,2
98(8
40,9
92)
40,5
98,3
0520
3422
,820
,000
9,68
7,82
0(7
41,8
41)
31,7
65,9
795,
435,
000
3,38
6,57
58,
821,
575
-
-
-
28
,255
,000
13,0
74,3
95(7
41,8
41)
40,5
87,5
5420
3518
,360
,000
8,73
7,36
8(6
38,9
49)
26,4
58,4
195,
690,
000
3,12
8,41
38,
818,
413
-
-
-
24
,050
,000
11,8
65,7
80(6
38,9
49)
35,2
76,8
3120
3619
,080
,000
7,90
8,07
5(5
32,1
66)
26,4
55,9
095,
860,
000
2,95
7,71
38,
817,
713
-
-
-
24
,940
,000
10,8
65,7
88(5
32,1
66)
35,2
73,6
2120
3719
,905
,000
6,97
7,34
0(4
21,3
44)
26,4
60,9
966,
045,
000
2,77
4,58
88,
819,
588
-
-
-
25
,950
,000
9,75
1,92
8(4
21,3
44)
35,2
80,5
8420
3820
,760
,000
6,00
6,58
5(3
06,3
32)
26,4
60,2
536,
285,
000
2,53
2,78
88,
817,
788
-
-
-
27
,045
,000
8,53
9,37
3(3
06,3
32)
35,2
78,0
4020
3921
,650
,000
4,99
4,03
3(1
86,9
81)
26,4
57,0
516,
490,
000
2,32
8,52
58,
818,
525
-
-
-
28
,140
,000
7,32
2,55
8(1
86,9
81)
35,2
75,5
7620
4022
,505
,000
4,01
7,86
3(6
3,09
2)26
,459
,771
6,70
5,00
02,
117,
600
8,82
2,60
0-
-
-
29,2
10,0
006,
135,
463
(63,
092)
35,2
82,3
7120
4116
,595
,000
3,19
0,40
0-
19
,785
,400
6,97
0,00
01,
849,
400
8,81
9,40
0-
-
-
23,5
65,0
005,
039,
800
-
28,6
04,8
0020
4217
,260
,000
2,52
6,60
0-
19
,786
,600
7,25
0,00
01,
570,
600
8,82
0,60
0-
-
-
24,5
10,0
004,
097,
200
-
28,6
07,2
0020
4317
,945
,000
1,83
6,20
0-
19
,781
,200
7,54
0,00
01,
280,
600
8,82
0,60
0-
-
-
25,4
85,0
003,
116,
800
-
28,6
01,8
0020
4418
,650
,000
1,11
8,40
0-
19
,768
,400
7,84
0,00
097
9,00
08,
819,
000
-
-
-
26
,490
,000
2,09
7,40
0-
28
,587
,400
2045
9,31
0,00
0
372,
400
-
9,68
2,40
0
8,
155,
000
665,
400
8,82
0,40
0-
-
-
17,4
65,0
001,
037,
800
-
18,5
02,8
0020
46-
-
-
-
8,48
0,00
033
9,20
08,
819,
200
-
-
-
8,
480,
000
339,
200
-
8,81
9,20
0$8
16,3
62,4
33$4
45,2
49,6
83($
34,2
27,8
09)
$1,2
27,3
84,3
07$1
07,4
70,0
00$9
5,92
4,87
8$2
03,3
94,8
78$4
8,31
0,00
0$1
0,87
4,29
9$5
9,18
4,29
9$9
72,1
42,4
33$5
52,0
48,8
60($
34,2
27,8
09)
$1,4
89,9
63,4
85
(1)
Onl
y in
clud
es a
mou
nts
to b
e de
posi
ted
in th
e si
nkin
g fu
nd f
or th
e 20
10 S
erie
s B
Bon
ds w
hich
are
Tax
able
Qua
lifie
d E
nerg
y C
onse
rvat
ion
Bon
ds (
inve
stm
ent e
arni
ngs
on s
inki
ng f
und
depo
sits
und
er a
n in
vest
men
t agr
eem
ent a
re r
equi
red
for
debt
ser
vice
pay
me
(2)
Due
to s
eque
stra
tion,
the
fede
ral d
irect
pay
men
ts o
n th
e Se
ries
2009
B B
uild
Am
eric
a B
onds
(“B
AB
s”),
the
Serie
s 20
10A
BA
Bs
and
the
Serie
s 20
10B
Qua
lifie
d E
nerg
y C
onse
rvat
ion
Bon
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“QE
CB
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wer
e re
duce
d by
am
ount
s of
app
roxi
mat
ely
6% to
9%
in
prio
r ye
ars.
It i
s no
t cur
rent
ly k
now
n w
heth
er f
eder
al d
irect
pay
men
ts w
ill b
e re
stor
ed to
thei
r or
igin
al a
mou
nts.
For
fis
cal y
ears
201
7 th
roug
h 20
40, t
he f
eder
al d
irect
pay
men
ts a
re a
ssum
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t the
ir or
igin
al r
ates
pay
able
on
the
outs
tand
ing
Serie
s 20
09B
B
AB
s , 2
010A
BA
Bs
and
2010
B Q
EC
Bs.
Exi
stin
g D
ebt
Serv
ice
Deb
t Se
rvic
e R
equi
rem
ents
on
the
201
6 Se
ries
A B
onds
Deb
t Se
rvic
e R
equi
rem
ents
on
the
2016
Ser
ies
B B
onds
Tot
al
A P P E N D IX B
FIN A N C IA L S TA TE M E N TS O F TH E UN IV E RS ITY O F KE N TUC KYA S O F A N D FO R TH E Y E A R E N D E D JUN E 30,2015
_____________________________
THIS PAGE INTENTIONALLY
LEFT BLANK_____________________________
University of Kentucky 2016 Financial Statements2015 Financial Statements
University of Kentucky A Component Unit of the Commonwealth of Kentucky
Financial Statements
Years Ended June 30, 2015 and 2014
TABLE OF CONTENTS
Message from the President i
Independent Auditor’s Report 1
Management’s Discussion and Analysis 4
Financial Statements
Statements of Net Position 19
Statements of Revenues, Expenses and Changes in Net Position 20
Statements of Cash Flows 21
Notes to Financial Statements 22
Required Supplementary Information 59
Governing Board 61
i
MESSAGE FROM THE PRESIDENT
This year, in celebration of the University of Kentucky’s 150
th
anniversary, UK Associate Professor and 2014 Kentucky Poet Laureate Frank X Walker captured the spirit of this place we love in his poem titled, “Seedtime in the Commonwealth.” "There is no vaccination against ignorance, but there is us. There is this university. And we still have heavy doors to open, unmet obligations to the land and its people. There are still leadership opportunities to advance the Commonwealth, this nation, and our world towards fulfilling its potential, towards meeting its lofty promises … Let men and women come here as seeds, let us invest in them until they form sufficient roots and leaves to obtain their own food. Let them grow from here not just trees, but a fruit-bearing, deeply-rooted forest." "There is us." There is this university. We were founded for Kentucky. Through the education we provide, the creative research we conduct, and the care and service we render, we are the university for Kentucky— the institution our Commonwealth has charged with asking and addressing the most penetrating questions confronting our state and our people, the vexations that challenge us in education, economic development, health care, and cultural, and societal advancement. Because of you, our success is evident across campus:
• At 30,131 students, UK broke its enrollment record for the fifth year in a row; and set new records for non-resident, African American, Hispanic and International student enrollment.
• The mean ACT Composite for the Fall 2014 first-year class was 25.5, and included 674 students with a 31-36 composite score – an 80% increase from 2009.
• The first-year class included 113 National Merit, National Achievement and National Hispanic Scholars, placing UK in the top 10 of public universities with these scholars.
• In the 2014-15 academic year, we awarded more than 6,400 undergraduate and graduate degrees.
• We welcomed 233 new full-time faculty.
• In FY 2014-15, UK received $285.1 million in external research grants and contracts – signifying that we are a major player among research institutions in the country.
• UK completed another historic year in philanthropy, securing record results in both gift receipts of $118.2 million, and in new commitments received of more than $168.3 million. These represent increases of 12% and 16%, respectively. UK received more than 101,200 gifts from 54,275 donors.
Our concerted effort to rebuild our campus continues. Our guiding principle – to build a community that fosters inclusivity and promotes success for the UK family – is manifest in the physical spaces that are coming to life. The University’s public/private partnership with EdR continues to make progress. In August, we completed the Woodland Glen community with residence halls III, IV and V opening to new students and living-learning programs. Phase II-C is underway for Limestone Park I and II, and the Board of Trustees recently approved Phase III – University Flats. In total, the completed and approved projects will add more than 6,500 beds across 13 facilities by Fall 2017. The investment thus far – more than $422 million – is transforming the way we house, educate and build community for our students. The Gatton College of Business and Economics completed its expansion in August, and the revitalization of the 90’s classroom wing is proceeding. The College of Fine Arts’ School of Art and Visual Studies moved into its new home on Bolivar Street. The $126.5 million Commonwealth Stadium project finished for the 2015 SEC football season, and construction on the expansion of the Nutter Training Facility continues. Progress is being made on the Academic Science Building and various projects in UK HealthCare. Both are critical to UK’s long-term academic, research and health care missions.
ii
Anchored by the largest single gift in the University’s history, and state authorization to self-finance the project, we started construction on the $175 million expansion and renovation of the Student Center. We reached important milestones in our $245 million dining partnership with Aramark. We announced the Food Connection at UK – an academic partnership with Aramark and the College of Agriculture, Food and Environment to strengthen the local food economy. Locally sourced food in our dining halls reached an all-time high, and we opened “The 90”, a modern 82,000 square foot dining facility that also provides spaces for academic programs supporting residential communities on south campus. To build on our excellence in health research that addresses the myriad public and clinical health issues in the Commonwealth, the University recently received approval from the state legislature to build a $265 million multi-disciplinary health science research facility. The facility will be financed with $132.5 million from the state and $132.5 million from various University resources. In total, over the last four years, UK has initiated – and largely self-financed – more than $1.81 billion to add or improve more than five million square feet in capital investment that enhances the academic, research, service and health care missions of the institution while maintaining a strong balance sheet and not placing a financial burden on the state. At the end of June, the University of Kentucky Board of Trustees adopted a $3.4 billion operating and capital budget that emboldens our work. This budget fundamentally represents the priorities that have directed our work thus far and our role as a flagship and land grant research university. The budget, more than mere numbers, is about people – our people. We are investing our resources toward creating access and quality for students and their families, while giving them the tools they need to succeed. And we are investing in our faculty and staff, who create an innovative and welcoming environment of learning, scholarship, healing and discovery that promises a bright future for our state. Our priorities and success have gained for us the confidence of external partners and expert analysts in our industry. At a time when other major research universities are experiencing stagnant enrollment and finances, often accompanied by negative ratings outlooks, a recent upgrade from Standard & Poor’s is a strong endorsement of our direction. In their report, S&P cited our increasing enrollment, revenue diversity aided by UK HealthCare, strong financial performance and a low debt burden as strengths for our future. Where do we go from here?
For the past several months, a leadership team, comprised of individuals from across our community, has been working in earnest to develop the UK Strategic Plan. This plan will guide our actions, and how we measure our progress, as we continue to serve the Commonwealth and the world. Our vision is grounded in and guided by five strategic objectives that mark our priorities: undergraduate student success, graduate education, diversity and inclusivity, research and scholarly work, and community engagement. Undergraduate education has always been at the heart of UK's mission, and it remains so today. All outstanding research universities offer stellar undergraduate experiences. Reaffirming the commitment we have maintained over the generations, we will continue to produce graduates prepared to serve the Commonwealth in all aspects of its development. Accordingly, we will be the university of choice for qualified undergraduate students, within both the Commonwealth and the region. For a community of scholars, graduate education represents the nurturing of intellectual seed for tomorrow's pedagogy and path-setting research. We will improve the quality and distinctiveness of our graduate programs to even better prepare our students for careers as accomplished scholars and professionals who contribute to the Commonwealth, the nation, and the world through their research, creative discovery and endeavors, teaching, and service. Our ability to prepare students for success in a global and increasingly interconnected economy is, in an important sense, most determined by the learning environment we provide them. Similarly, the ability of our faculty and staff to harness and reach their potential is facilitated, in large measure, by the extent to which our campus community is diverse, welcoming and inclusive. Deeply understanding this dynamic – and acting upon it – means we will work each day to strengthen the diversity and inclusivity of our university community through recruitment and retention of an increasingly diverse population of faculty, staff and students, and by implementing initiatives that provide rich diversity-related experiences for all, to help ensure their success in a diverse and interconnected world. Our research and scholarly endeavors offer the brightest hope for transformation and change for our Commonwealth and the broader world we serve. We will, therefore, expand our scholarly work, creative endeavors, and cutting-edge research to focus on the most important challenges of the Commonwealth and to improve the lives of our citizens. Our sense of connection to those we serve and our steadfast commitment to changing lives is an integral part of what makes our campus community special. To foster that, we will build upon our engagement with – and service to – our community partners
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within the Commonwealth, the nation, and the world by honoring our historic commitments as a land-grant institution. We will leverage contemporary technology, scholarship and research in innovative ways to advance the public good and to foster the development of citizen-scholars. With the harmony of diverse voices and perspectives, but in the cadence of a common voice, the strategic plan, which our Board will consider in October, creates a blueprint for our future, guided by the values and dreams of those who built this special place. Much has been accomplished, and our Board, alumni, faculty, staff, students, policy-makers, private partners and donors who believe in us are those to whom recognition is most due. Challenges remain. New obstacles will appear. Still our future is hopeful and bright because of the steadfast stewardship of those who came before us and those who now have been entrusted with this precious legacy birthed 150 years ago. I look forward to sharing that future with you. Eli Capilouto President
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Independent Auditor’s Report
Board of Trustees University of Kentucky Lexington, Kentucky Report on the Financial Statements
We have audited the accompanying basic financial statements of the University of Kentucky (University), a component unit of the Commonwealth of Kentucky, which are comprised of statements of net position as of June 30, 2015 and 2014, and statements of revenues, expenses and changes in net position and of cash flows for the years then ended and the related notes to the financial statements, as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Kentucky Medical Services Foundation, Inc. (KMSF), a blended component unit of the University, which statements reflect total assets of $195,126 and $139,714 as of June 30, 2015 and 2014, respectively, and total revenues of $304,167 and $230,336, respectively, for the years then ended (dollars in thousands). Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for KMSF, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of KMSF, which are included in the University’s reporting entity, were not audited in accordance with Government Auditing Standards.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that
Board of Trustees University of Kentucky Page 2
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are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2015 and 2014, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and post-employment and long-term disability benefit plan information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audits were conducted for the purpose of forming an opinion on the basic financial statements as a whole. The governing board listing and the message from the president as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.
Board of Trustees University of Kentucky Page 3
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Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated October 2, 2015, on our consideration of the University’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University’s internal control over financial reporting and compliance.
Louisville, Kentucky October 2, 2015
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Management’s Discussion and Analysis The following Management’s Discussion and Analysis (MD&A) provides an overview of the financial position and activities of the University of Kentucky (the University or UK) and its affiliated corporations for the years ended June 30, 2015 and 2014. Management has prepared this discussion, and suggests that it be read in conjunction with the financial statements and the notes appearing in this report. About the University of Kentucky Mission. The University of Kentucky is a public, land-grant university dedicated to improving people's lives through excellence in education, research and creative work, service and health care. As Kentucky's flagship institution, the University plays a critical leadership role by promoting diversity, inclusion, economic development and human well-being. Vision. As Kentucky’s indispensable educational institution, we transform the lives of our students and advance the Commonwealth we serve and beyond through our teaching and learning, diversity and inclusion, discovery, research and creativity, promotion of health, and deep community engagement. Values. The University of Kentucky is guided by its core values:
Integrity Excellence Mutual respect and human dignity Diversity and inclusion Academic freedom Personal and institutional responsibility and accountability Shared governance A sense of community Work-life sensitivity Civic engagement Social responsibility
Background. Under provisions of the federal Morrill Land-Grant Colleges Act (1862), Kentucky State Agricultural and Mechanical College was established in 1865 as part of Kentucky University (now Transylvania University). The College separated from Kentucky University in 1878 and was established on a 52 acre site (the University’s current location) donated by the city of Lexington. In 1908, the College was re-named the State University, Lexington, Kentucky. In 1916 it became the University of Kentucky. According to the Kentucky Revised Statutes (KRS) 164.125(2):
In carrying out its statewide mission, the University of Kentucky shall conduct statewide research and provide statewide services, including, but not limited to, agricultural research and extension services, industrial and scientific research, industrial technology extension services to Kentucky employers and research related to the doctoral, professional and postdoctoral programs offered within the University. The University may establish and operate centers and utilize state appropriations and other resources to carry out the necessary research and service activities throughout the state. The University may enter into joint research and service activities with other universities in order to accomplish its statewide mission.
In 1997, the Kentucky General Assembly reformed the state’s public system of colleges and universities. According to the Kentucky Postsecondary Education Improvement Act of 1997:
The University of Kentucky is mandated to become a major comprehensive research institution ranked nationally in the top twenty public universities by 2020.
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At its December 2005 meeting, the UK Board of Trustees approved the Top 20 Business Plan. The University’s Strategic Plan for 2009-2014 was adopted by the UK Board of Trustees at its June 2009 meeting. The Strategic Plan is designed to measure the University’s progress by establishing specific goals for teaching, research and service at the department, college and university level. The Strategic Plan established five goals:
Prepare Students for Leading Roles in an Innovation-driven Economy and Global Society Promote Research and Creative Work to Increase the Intellectual, Social, and Economic Capital of
Kentucky and the World Beyond Its Borders Develop the Human and Physical Resources of the University to Achieve the Institution’s Top 20 Goals Promote Diversity and Inclusion Improve the Quality of Life of Kentuckians through Engagement, Outreach and Service
Today, the University continues to focus on the core academic mission of the institution and the original tenets of the Morrill Land-Grant Colleges Act (1862). For 150 years, we have been a beacon for Kentucky, shining bright a path to prosperity and economic competitiveness. We remain steadfast in our covenant with the Commonwealth – to produce graduates prepared for a 21st century economy; to conduct research that extends the boundaries of scientific discovery; and to render service and patient care that uplifts our community and region. Work is currently underway to develop UK’s next strategic plan for the years 2015-2020. The plan will build on extraordinary progress from previous planning documents, a dramatic investment in the institution’s physical spaces, and the insight garnered from considerable campus conversation and constituent input. The plan considers the current operating context for higher education and focuses on five strategic objectives that support our role as Kentucky’s indispensable institution:
Undergraduate Student Success – To be the University of choice for aspiring undergraduate students within the Commonwealth and beyond, seeking a transformational education that promotes self-discovery, experiential learning, and life-long achievement.
Graduate Education – Strengthen the quality and distinctiveness of our graduate programs to transform our students into accomplished scholars and professionals who contribute to the Commonwealth, the nation, and the world through their research and discovery, creative endeavors, teaching, and service.
Diversity and Inclusivity – Enhance the diversity and inclusivity of our University community through recruitment and retention of an increasingly diverse population of faculty, staff, and students, and by implementing initiatives that provide rich diversity-related experiences for all, to help ensure their success in an interconnected world.
Research and Scholarly Work – Expand our scholarship, creative endeavors, and research across the full range of disciplines to focus on the most important challenges of the Commonwealth, our nation, and the world.
Outreach and Community Engagement – Leverage leading-edge technology, scholarship, and research in innovative ways to advance the public good and to foster the development of citizen-scholars.
The steering committee is developing an implementation plan and metrics for review and approval by the Board of Trustees in October 2015. The University is identified as a “Research University (very high research activity)” by the Carnegie Commission on Higher Education. There are 108 such institutions in the United States (out of approximately 3,600 colleges and universities). The University is accredited by the Commission on Colleges (CoC) of the Southern Association of Colleges and Schools (SACS). This has been re-affirmed at approximately 10-year intervals since 1915, with the next accreditation review scheduled for 2022. In addition, several degree programs and individual units are accredited by agencies appropriate to specific professions or fields.
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Students. In Fall 2014, the University had 30,131 undergraduate, graduate, and professional students. They represent all 120 Kentucky counties, every state in the U.S. and over 100 countries. Enrollment has increased by 3,692 students (14%) since Fall 2005.
20,677 19,810
18,802
15,153
13,537
14,930
13,592 12,655
10,362 9,275
5,185 4,684 4,647 4,139 4,328
‐
5,000
10,000
15,000
20,000
25,000
FY 14‐15 FY 13‐14 FY 12‐13 FY 11‐12 FY 10‐11
First Year Students Applied, Admitted and Enrolled(Fall Term)
Applied Admitted Enrolled
Programs. The University offers more than 200 majors and degree programs in 17 academic and professional colleges that are supported by a comprehensive research library system. UK is one of only eight public universities nationally with colleges of Agriculture, Engineering, Medicine and Pharmacy on a single contiguous campus. Research. Total research expenditures, as reported to the National Science Foundation, totaled $328.2 million for fiscal year 2013-14, compared to $339.8 million in 2012-13. Research awards received during fiscal year 2014-15 total $285.1 million, a 10% increase from the prior year amount of $259.3 million.
$153.1 $152.5
$137.4
$152.3
$167.3
$73.6
$53.3
$62.9 $65.6 $70.1
$58.4 $53.5
$65.6
$56.2 $61.7
$‐
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
FY 14‐15 FY 13‐14 FY 12‐13 FY 11‐12 FY 10‐11
Grant and Contract Awards(In Millions)
Federal State Other
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Outreach. As Kentucky’s flagship, land-grant university, UK engages citizens and communities across the state in a myriad of ways, including extension offices in all 120 Kentucky counties; continuing education opportunities for teachers, lawyers and health care providers; clinics providing legal, pharmaceutical and health care assistance; and a multitude of research efforts aimed at Kentucky’s most difficult problems in economic development, health care, infrastructure and education. Medical Centers. UK HealthCare, a trademarked brand used by the University of Kentucky for its health care services, is uniquely equipped to provide advanced subspecialty care to the people of Kentucky. The academic medical center and health system provides patient care on par – in terms of both volume and complexity – with the nation’s top 25% of academic medical centers. In October 2013, UK HealthCare was named a “Rising Star” by the University HealthSystem Consortium (UHC) for gains made in quality, safety, efficiency and equity of care. This and other notable achievements are listed at http://ukhealthcare.uky.edu/quality/awards/. UK HealthCare Hospital System (the System) operates two hospital units under one Joint Commission Accreditation and two licenses in addition to ambulatory services. The major service units include Albert B. Chandler Hospital, Good Samaritan Hospital and the Kentucky Clinic. The System has a combined total of 826 licensed beds with an average daily census of 698 patients. On a monthly basis, the system provides over 1,257 inpatient surgeries, 1,343 outpatient surgeries, 31,649 radiology procedures, 8,450 emergency department visits and 111,307 hospital based outpatient clinic visits. Under a management contract entered into with the Kentucky Cabinet for Health and Family Services (CHFS), the System also operates and manages Eastern State Hospital, a 300,000 square-foot facility located on the University’s Coldstream Research Campus. Eastern State Hospital provides a modern setting for both acute and long-term inpatient psychiatric treatment for adults living within Fayette County and the 50 surrounding counties. UK HealthCare’s Markey Cancer Center remains the state’s only cancer center designated by the National Cancer Institute (NCI), which reflects UK’s position as a frontrunner in cancer treatment and research. UK HealthCare is one of an elite group of only 22 medical centers in the United States that have NCI designation, a federally funded Center on Aging, and a highly prized Clinical and Translational Science Award (CTSA) grant. UK HealthCare’s dramatic growth within the last decade is in large part the result of a commitment to support the state’s overall system of care by working hand-in-hand with local community providers to bring specialty care closer to the patient. These relationships take on different dimensions in each locality (management agreements, affiliate networks, outreach, etc.) and support keeping less acute care in the local community and smoothing the process for more complex, serious cases to be treated in UK HealthCare’s Lexington facilities. The goal is better care at all points of the continuum. Libraries. UK operates a nationally recognized research library system, with the capstone being the world-class William T. Young Library. UK’s book endowment is the largest among public universities. Its library network and technology provide extraordinary service to students in the colleges of Medicine, Law, Engineering, Fine Arts and other programs. Meanwhile, students, faculty and Kentucky residents can use UK Libraries’ advanced technology to access the most up-to-date information from online journals, government publications and private studies. Financial Highlights The University’s overall financial position remains fiscally sound with assets of $5.48 billion, deferred outflows of resources of $13.8 million, liabilities of $1.80 billion and deferred inflows of resources of $241.1 million as of June 30, 2015. Net position, which represents the University’s residual interest in assets and deferred outflows of resources after liabilities and deferred inflows of resources are deducted, was $3.46 billion (63% of total assets).
Total assets increased $990.5 million (22%), primarily due to increases in cash and cash equivalents, notes, loans and accounts receivable, net and capital assets, net.
Deferred outflows of resources increased $13.8 million due to the unamortized difference between the reacquisition price and the net carrying amount of refunded debt.
Total liabilities increased $449.7 million (33%), primarily due to increases in unearned revenue, bonds and
capital lease obligations and accounts payable and accrued liabilities.
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Deferred inflows of resources totaled $241.1 million due to the new service concession arrangements entered into with Education Realty Trust (EdR) of $130.3 million, Aramark Educational Services, LLC (Aramark) of $105.9 million and Barnes and Noble College Booksellers (Barnes and Noble) of $4.9 million.
Total net position increased $313.4 million (10%). Unrestricted net position increased $203.6 million and
net investment in capital assets increased $74.8 million. Restricted net position increased $35.0 million mainly due to capital projects including the Gatton College of Business and Economics expansion and the University Department of Intercollegiate Athletics (Athletics) new football training facility.
Operating revenues were $2.46 billion and operating expenses were $2.61 billion, resulting in a loss from
operations of $147.1 million. Nonoperating and other revenues, net of nonoperating expenses, were $460.5 million, including $279.6 million in state appropriations.
Using the Financial Statements The University presents its financial reports in a “business type activity” format, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements and Management’s Discussion and Analysis for Public Colleges and Universities – an amendment of GASB Statement No. 34. GASB requires that statements be presented on a comprehensive, entity-wide basis. In addition to this MD&A section, the financial report includes:
Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Notes to the Financial Statements
Reporting Entity The University is a component unit of the Commonwealth of Kentucky (Commonwealth). The financial statements of the University include the operations of the University and the following entities:
University of Kentucky Research Foundation, and its for-profit subsidiaries, Kentucky Technology, Inc. and Coldstream Laboratories, Inc. (CLI)
The Fund for Advancement of Education and Research in the University of Kentucky Medical Center University of Kentucky Gluck Equine Research Foundation, Inc. University of Kentucky Humanities Foundation, Inc. University of Kentucky Mining Engineering Foundation, Inc. University of Kentucky Center on Aging Foundation, Inc. Central Kentucky Management Services, Inc. Kentucky Medical Services Foundation, Inc.
Statement of Net Position The Statement of Net Position is the University’s balance sheet. It reflects the total assets, liabilities, net position (equity), and deferred outflows and inflows of resources of the University as of June 30, 2015, with comparative information as of June 30, 2014. Liabilities due within one year, and assets available to pay those liabilities, are classified as current. Other assets and liabilities are classified as noncurrent. Net position (i.e. the difference between total assets and total liabilities and deferred inflows and outflows of resources) are an important indicator of the University’s current financial condition, while the change in net position is an indicator of whether the overall financial position has improved or worsened during the year. Generally, assets and liabilities and deferred inflows and outflows of resources are reported using current values. A major exception is capital assets, which are stated at historical cost less accumulated depreciation.
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A summarized comparison of the University’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position as of June 30, 2015, 2014 and 2013 are as follows:
Condensed Statements of Net Position (in thousands)
2015 2014 2013
ASSETS AND DEFERRED OUTFLOWS OF RESOURCESCurrent assets 983,253$ 694,839$ 661,164$ Capital assets, net 2,336,640 1,979,404 1,955,731 Other noncurrent assets 2,161,316 1,816,476 1,327,891 Deferred outflows of resources 13,755 - -
Total assets and deferred outflows of resources 5,494,964 4,490,719 3,944,786
LIABILITIES AND DEFERRED INFLOWS OF RESOURCESCurrent liabilities 472,487 358,671 324,496 Noncurrent liabilities 1,324,095 988,196 757,223 Deferred inflows of resources 241,124 - 561
Total liabilities and deferred inflows of resources 2,037,706 1,346,867 1,082,280
NET POSITIONNet investment in capital assets 1,422,560 1,347,778 1,304,887 Restricted
Nonexpendable 585,074 576,265 569,589 Expendable 451,990 425,775 312,324
Unrestricted 997,634 794,034 675,706
Total net position 3,457,258$ 3,143,852$ 2,862,506$
Assets. As of June 30, 2015, total assets amounted to $5.48 billion. The largest asset class was capital assets, net, that totaled $2.34 billion or 43% of total assets. Endowment investments were $1.23 billion, or 23% of total assets and cash and cash equivalents totaled $937.5 million, or 17% of total assets. During the year, total assets increased by a net $990.5 million primarily due to an increase in capital assets, net of $357.2 million, notes, loans and accounts receivable, net of $332.2 million, cash and cash equivalents of $256.6 million, other long-term investments of $26.9 million and endowment investments of $16.3 million. Deferred Outflows of Resources. The University’s deferred outflows of resources totaled $13.8 million, which represents the unamortized difference between the reacquisition price and the net carrying amount of refunded debt. Liabilities. As of June 30, 2015, total liabilities amounted to $1.80 billion. Bonds and notes payable, capital leases and other long-term obligations issued for educational buildings, housing, the UK HealthCare Hospital System, athletics football stadium, and equipment totaled $930.4 million, or 53% of total liabilities. During the year, total liabilities increased by $449.7 million primarily in unearned revenue of $230.9 million including the new multimedia rights contract with JMI Sports for Athletics, the issuance of new debt comprised of $347.2 million in general receipts bonds, $26.7 million in capital leases and $38.5 million in unamortized bond premium offset by principal payments of $50.4 million and refunded debt of $231.2 million, and an increase in accounts payable and accrued liabilities of $65.6 million. Deferred Inflows of Resources. The University’s deferred inflows of resources totaled $241.1 million, that represents new service concession arrangements with EdR of $130.3 million, Aramark of $105.9 million and Barnes and Noble of $4.9 million. Net Position. The University’s equity of $3.46 billion as of June 30, 2015 is reported on the Statement of Net Position in three net position categories: net investment in capital assets, $1.42 billion (41%); restricted nonexpendable, $585.1 million (17%) and restricted expendable, $452.0 million (13%); and unrestricted, $997.6 million (29%).
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Restricted net position is subject to externally imposed restrictions governing its use. Although unrestricted net position is not subject to externally imposed stipulations, most of the unrestricted net position has been internally designated for support of academic and research programs and initiatives, capital projects and working capital requirements. Total net position increased $313.4 million during the year ended June 30, 2015. Net investment in capital assets increased $74.8 million due to excess of additions of capital assets and principal payments of capital debt offset by depreciation expense. Restricted net position increased $35.0 million principally due to gifts for construction projects including the Gatton College of Business and Economics renovation/expansion and Athletics’ new football training facility. Unrestricted net position increased $203.6 million, primarily due to an increase in operating revenues of $313.0 million offset by an increase in operating expenses of $167.7 million. 2014 Versus 2013. During the year ended June 30, 2014:
Total assets increased by a net $545.9 million primarily due to an increase in cash and cash equivalents of $229.0 million, endowment investments of $160.8 million, other long-term investments of $86.5 million, capital assets, net of $23.7 million, notes, loans and accounts receivable, net of $22.7 million and current investments of $19.5 million.
Liabilities increased $265.1 million primarily as the result of the issuance of new debt of $241.8 million offset
by principal payments, an increase in accounts payable and accrued liabilities and a decrease in unearned revenue.
Deferred inflows of resources decreased $561 thousand due to the amendment of the Forward Delivery
Agreement that eliminated the hedging instrument that provided a specified rate of return on certain debt service instruments.
Total net position increased $281.3 million. Net investment in capital assets increased $42.9 million due to
excess of additions of capital assets and principal payments of capital debt offset by depreciation expense. Restricted net position increased $120.1 million principally as a result of gain on endowment investments due to a positive return on the endowment pool. Unrestricted net position increased $118.3 million primarily due to an increase in operating revenues of $166.3 million offset by an increase in operating expenses of $141.7 million. Additionally, the positive return on the endowment pool caused an increase in quasi endowment net position of $37.6 million.
Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position is the University’s income statement. It details how net position has changed during the year ended June 30, 2015, with comparative information for the year ended June 30, 2014. This statement is prepared on the accrual basis of accounting whereby revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the service, regardless of when cash is exchanged. Items that increase or decrease net position appear on the Statement of Revenues, Expenses and Changes in Net Position as revenues, expenses, gains or losses. Financial activities are reported as either operating or nonoperating. GASB Statement No. 35 requires state appropriations, gifts, and investment income to be classified as nonoperating revenues. Accordingly, the University reports a net operating loss prior to the addition of nonoperating revenues. The utilization of long-lived capital assets is reflected in the financial statements as depreciation, which amortizes the cost of an asset over its expected useful life. Tuition revenue is reduced by external scholarships and institutional aid and is reported net of the scholarship allowance.
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A summarized comparison of the University’s revenues, expenses and changes in net position for years ended June 30, 2015, 2014 and 2013 are as follows:
Condensed Statements of Revenues, Expenses and Changes in Net Position (in thousands)
2015 2014 2013
OPERATING REVENUESStudent tuition and fees, net of scholarship allowances 302,936$ 287,517$ 265,293$ Grants and contracts 290,199 256,179 283,378 Hospital services 1,323,652 1,101,662 945,885 Professional clinical service fees 223,291 203,721 196,974 Auxiliary enterprises, net of scholarship allowances 175,232 155,393 153,006 Recoveries of facilities and administrative costs 48,154 47,159 47,862 Sales and services 54,112 54,765 50,473 Federal and county appropriations 39,510 38,259 36,202 Other operating revenues 5,059 4,516 3,772
Total operating revenues 2,462,145 2,149,171 1,982,845
OPERATING EXPENSESEducational and general, excluding depreciation 1,003,856 1,026,280 998,229 Clinical operations, excluding depreciation 243,688 168,934 184,794 Hospital and clinics, excluding depreciation 1,080,956 963,272 840,119 Auxiliary enterprises, excluding depreciation 145,739 150,451 143,028 Depreciation 134,374 131,262 133,066 Other operating expenses 640 1,384 682
Total operating expenses 2,609,253 2,441,583 2,299,918
NET LOSS FROM OPERATIONS (147,108) (292,412) (317,073)
NONOPERATING REVENUES (EXPENSES)State appropriations 279,611 283,869 283,869 Gifts and non-exchange grants 105,506 96,771 98,418 Investment income (loss) 45,188 155,547 104,748 Interest on capital asset-related debt (27,691) (30,288) (29,244) Capital grants and gifts 45,341 54,068 30,672 Additions to permanent endowments 7,758 7,578 10,225 Other, net 4,801 6,213 8,179
Total nonoperating revenues (expenses) 460,514 573,758 506,867
Total increase in net position 313,406 281,346 189,794
Net position, beginning of year 3,143,852 2,862,506 2,672,712
Net position, end of year 3,457,258$ 3,143,852$ 2,862,506$
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$303 $338
$1,324
$223 $175
$99
$288 $303
$1,102
$204 $155
$98
$265 $331
$946
$197 $153
$90
$‐
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
Student tuition andfees, net of
scholarship allowances
Grants, contracts andrecoveries of facil ities
and administrativecosts
Hospital services Professional clinicalservice fees
Auxiliary enterprises,net of scholarship
allowances
All other operatingrevenue
Operating Revenues(in millions)
2015 2014 2013
Total operating revenues were $2.46 billion for the year ended June 30, 2015, an increase of $313.0 million (15%). The primary components of operating revenues were student tuition and fees of $302.9 million; grants, contracts and recoveries of facilities and administrative costs of $338.4 million; hospital services of $1.32 billion; and professional clinical service fees of $223.3 million. The major increase was in hospital service revenue of $222.0 million attributable to an increase in rates, partially driven by patient acuity, and improved payer mix as a result of the Medicaid expansion program. Retail and contract pharmacy sales also increased hospital service revenues. Other significant increases in operating revenues related to net student tuition and fees of $15.4 million due to tuition and fee rate increases as well as increased enrollment; grants and contracts of $34.0 million due to increases in professional supplemental payments from state and federal grants and contracts; professional clinical service fees of $19.6 million due to increased patient activity and improved reimbursements associated with the decline in the uninsured self-pay population due to Medicaid expansion; and auxiliary enterprises of $19.8 million.
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$1,004
$244
$1,081
$146 $134
$1,026
$169
$963
$150 $131
$998
$185
$840
$143 $133
$‐
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
Educational and general,excluding depreciation
Clinical operations,excluding depreciation
Hospital and clinics,excluding depreciation
Auxiliary enterprises,excluding depreciation
Depreciation
Operating Expenses(in millions)
2015 2014 2013
Operating expenses totaled $2.61 billion, an increase of $167.7 million (seven percent). Of this amount, $1.00 billion (excluding depreciation) was expended for educational and general programs, including instruction, research and public service. Hospital and clinics expenses, excluding depreciation, amounted to $1.08 billion and clinical operations expenses, excluding depreciation, were $243.7 million. Depreciation expense for the year amounted to $134.4 million. Education and general programs expenses, excluding depreciation, decreased $22.4 million due primarily to decreases in public service expenses of $29.9 million, student financial aid of $9.2 million, operation and maintenance of plant of $5.8 million and research of $1.8 million. Offsetting these decreases was an increase in instruction expenses of $14.5 million, institutional support of $6.3 million, student services expenses of $1.9 million and academic support expenses of $1.6 million. Clinical operations expenses, excluding depreciation, increased $74.8 million primarily due to the increased use of funds provided by professional supplemental payments revenue and corresponding expenses reflected within this category. Hospital and clinics expenses, excluding depreciation, increased $117.7 million primarily due to additional staffing and supplies required for increased patient volume and market adjustments for clinical staff. Auxiliary enterprise expenses, excluding depreciation, decreased $4.7 million primarily in housing and dining due to outsourcing services to EdR and Aramark. Depreciation expense increased $3.1 million due to new buildings, renovations and equipment depreciation. The net loss from operations for the year was $147.1 million. Nonoperating and other revenues, net of expenses, totaled $460.5 million and included state appropriations of $279.6 million. Gifts and non-exchange grants totaled $105.5 million – an increase of $8.7 million; capital grants and gifts of $45.3 million – a decrease of $8.7 million; investment income of $45.2 million – a decrease of $110.4 million; and additions to permanent endowments of $7.8 million – a decrease of $180 thousand. 2014 Versus 2013. Total operating revenues were $2.15 billion for the year ended June 30, 2014, including: student tuition and fees of $287.5 million (13%); grants, contracts, and recoveries of facilities and administrative costs of $303.3 million (14%); professional clinical service fees of $203.7 million (nine percent); and hospital services of $1.10 billion (51%). Operating revenues for fiscal year 2014 increased $166.3 million or eight percent over fiscal year 2013, primarily due to increases in hospital services revenue of $155.8 million resulting from an increase in rates and overall case mix; student tuition and fees of $22.2 million due to tuition and fees rate increases as well as increased enrollment; and professional clinical service fees of $6.7 million due to increased patient activity and improved reimbursements associated with the decline in the uninsured self-pay population due
14
to Medicaid expansion; sales and services of $4.3 million and auxiliary enterprises net of scholarship allowances of $2.4 million while grants and contracts decreased $27.2 million due to the closure of the Department of Corrections Health Care Network grant and a reduction in funding from the American Recovery and Reinvestment Act of 2009. Operating expenses totaled $2.44 billion in fiscal year 2014. Of this amount, $1.03 billion (42%), excluding depreciation, was expended for educational and general programs, including instruction, research and public service. Hospital and clinics expenses, excluding depreciation, totaled $963.3 million (39%) of the total expenses, and clinical operations expenses, excluding depreciation, were $168.9 million (seven percent). Depreciation amounted to $131.3 million (five percent). Operating expenses for fiscal year 2014 increased $141.7 million (six percent) compared to fiscal year 2013 primarily due to an increase in education and general program expenses of $28.1 million (three percent); hospital and clinics expenses, excluding depreciation of $123.2 million (15%); and auxiliary enterprises expenses of $7.4 million (five percent). Offsetting decreases were in clinical operations expenses, excluding depreciation, of $15.9 million (nine percent) and depreciation expense of $1.8 million (one percent). The net loss from operations for the 2014 fiscal year totaled $292.4 million. Nonoperating and other revenues, net of expenses, totaled $573.8 million, resulting in an increase in net position of $281.3 million for the year. Nonoperating revenue included state appropriations of $283.9 million for both June 30, 2014 and June 30, 2013. Statement of Cash Flows The Statement of Cash Flows details how cash has increased or decreased during the fiscal year ended June 30, 2015, with comparative financial information for the fiscal year ended June 30, 2014. The sources and uses of cash are arranged in the following categories:
Operating activities Noncapital financing activities Capital financing activities Investing activities
Cash flows associated with the University’s expendable net position appear in the operating and noncapital financing categories. Capital financing activities include payments for capital assets, proceeds from long-term debt, and debt repayments. Purchases and sales of investments are reflected in investing activities. The primary purpose of the Statement of Cash Flows is to provide information about the cash receipts and cash payments made by the University during the year that will allow financial statement readers to assess the University’s ability to generate future net cash flows and to meet obligations as they become due, and to assess the possible need for external financing.
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A comparative summary of the University’s statement of cash flows for years ended June 30, 2015, 2014 and 2013 are as follows:
Condensed Statements of Cash Flows (in thousands)
2015 2014 2013CASH PROVIDED (USED) BY:
Operating activities 11,738$ (150,202)$ (152,097)$ Noncapital financing activities 416,732 409,650 402,433 Capital and related financing activities (178,778) 81,163 (127,067) Investing activities 6,900 (111,587) (19,582)
Net increase (decrease) in cash and cash equivalents 256,592 229,024 103,687
Cash and cash equivalents, beginning of year 680,891 451,867 348,180
Cash and cash equivalents, end of year 937,483$ 680,891$ 451,867$
The University’s cash and cash equivalents increased $256.6 million in fiscal year 2015. Total cash provided by operating and noncapital financing activities was $428.5 million, an increase of $169.0 million compared to fiscal year 2014. Total cash provided by investing activities was $6.9 million. Total cash used by capital financing activities was $178.8 million, reflecting both capital funding sources (debt proceeds) and uses (purchases of capital assets and debt service). Major sources of cash received from operating activities were student tuition and fees of $301.5 million; hospital services of $1.34 billion; grants, contracts, and recoveries of facilities and administrative costs of $333.1 million; and professional clinical service fees of $221.7 million. Major uses of cash for operating activities were payments to employees for salaries and benefits of $1.64 billion and to vendors and contractors of $781.4 million. Noncapital financing activities include state appropriations from the Commonwealth of $279.6 million; gifts of $121.0 million and other noncapital financing receipts of $16.1 million. Capital and related financing activities include proceeds of capital debt of $392.1 million and capital grants and gifts of $31.0 million. Cash of $284.0 million was expended for construction and acquisition of capital assets, $248.6 was expended for payments to refunding bond agents and $84.7 million was expended for principal and interest payments on debt. Investing activities include proceeds from sales and maturities of investments of $313.0 million and interest and dividends on investments of $19.9 million. Net proceeds from the sale of CLI and related debt and other payments totaled $16.6 million. Cash of $342.5 million was used to purchase investments. 2014 Versus 2013. Cash balances were higher when comparing fiscal year 2014 to fiscal year 2013. The $229.0 million net increase in cash was created from more cash provided by capital and noncapital financing activities and less cash used by operating activities offset by more cash used for investing activities.
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Capital Asset and Debt Administration
Capital Assets Capital assets, net of accumulated depreciation, totaled $2.34 billion at June 30, 2015, an increase of $357.2 million. Capital assets as of June 30, 2015, 2014 and 2013, and significant changes in capital assets during the years ended June 30, 2014 and 2015 are as follows (in millions):
Net NetAdditions Additions
Balance (Deletions) Balance (Deletions) BalanceJune 30, 2013 FY 13-14 June 30, 2014 FY 14-15 June 30, 2015
Land and land improvements 180$ 5$ 185$ 9$ 194$ Buildings, fixed equipment
and infrastructure 2,369 32 2,401 231 2,632 Equipment, vehicles and
capitalized software 710 25 735 22 757 Library materials and art 160 2 162 2 164 Certificate of need license 12 - 12 - 12 Construction in progress 35 57 92 175 267 Accumulated depreciation (1,510) (98) (1,608) (81) (1,689)
Total 1,956$ 23$ 1,979$ 358$ 2,337$
At June 30, 2015, the University had capital construction projects in progress totaling approximately $845.9 million in scope. Major projects include the renovation and expansion of Commonwealth Stadium and Nutter Training Center, the renovation and expansion of the Gatton College of Business and Economics, the construction of the Academic Science Building, the renovation and expansion of the Student Center and the fit-up of the 9th and 10th floors of the Patient Care Facility. The estimated cost to complete the projects in progress was approximately $580.2 million. Net additions also include EdR Phase II construction totaling $136.4 million and Aramark capital renovation projects of $10.5 million. Debt At June 30, 2015, capital debt amounted to $930.4 million, summarized by trust indenture and type are as follows (in millions):
2015 2014 2013
General Receipts bonds and notes 821$ 698$ 479$ Consolidated Educational Buildings Revenue Bonds - 33 38 Capital lease obligations 90 86 109 Notes payable 19 21 22
Total 930$ 838$ 648$
Debt increased $92.3 million during the year primarily due to the issuance of General Receipts Bonds 2014 Series D for $88.1 million, General Receipts Bonds 2015 Series A, B and C for $259.0 million and additional capital leases of $26.7 million, offset by a net decrease from principal payments of the University’s debt obligations of $50.4 million and the refunding of Consolidated Educational Building and Revenue Bonds (CEBRB) Series PQR and U, General Receipts Bonds and Notes 2005 Series A, General Receipts Bonds 2006 Series A and General Receipts Notes 2007 Series A and B of $231.2 million.
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Economic and Other Factors That Will Affect the Future Executive management believes the University is well-positioned to maintain its strong financial condition and to continue providing excellent service to students, patients, the community, and the citizens of the Commonwealth. The University’s strong financial condition, as evidenced by recent credit ratings of Aa2 and AA from Moody’s Investors Service and Standard & Poor’s Ratings Services, respectively, will provide a high degree of flexibility in obtaining funds for future capital projects on competitive terms. This flexibility, along with ongoing efforts toward revenue diversification and cost containment, will enable the University to obtain the necessary resources to sustain excellence. The following are known facts and circumstances that will affect future financial results:
The Commonwealth’s economy is showing positive emerging trends of consistent job growth, a lower unemployment rate, and higher consumer confidence. Kentucky personal income is projected to grow faster than that of the national average for at least the next year. Home prices are increasing in urban areas such as Louisville and Northern Kentucky and the number of new home construction permits issued also is increasing. As a result of a General Fund surplus for fiscal year 2014-15, the Commonwealth’s Budget Reserve Trust Fund is estimated to exceed $209.0 million, the largest balance since fiscal year 2007-08.
The enacted fiscal year 2015-16 budget generally reflects no change in state appropriations for state agencies and public colleges and universities. As a result, state support as a percentage of the University’s total budget is expected to continue to decline. Over the past 10 years, state support decreased from 17% of the total operating budget to eight percent. In spite of significant enrollment growth and cost increases, state support for fiscal year 2015-16 will be $39.0 million less than it was in fiscal year 2006-07.
Student demand is expected to remain high in the coming years. Applications for the Fall 2015 incoming class will exceed 22,500 for the first time in the University’s history. Preliminary numbers indicate that the Fall 2015 entering freshmen class will reach 5,217 students – an increase of 1,027 or 25% since Fall 2006.
The University is undergoing a momentous physical transformation, part of which involves revitalization of its on-campus housing through a comprehensive public/private partnership (P3) with EdR. The multi-phase P3 is the first of its kind in the nation, entailing a substantial increase in the quantity and quality of student housing while allowing the University to reserve its debt capacity for other capital needs. Seven new residence halls came online in August 2013 and 2014 adding 2,982 beds to the housing stock and three additional residence halls were brought online in August 2015, adding another 1,610 beds. The total to date is 4,592 beds. Under construction now are three additional buildings which will bring the total to 6,504 new beds by Fall 2017. The total plan includes increasing the current on-campus housing stock up to 9,000 beds by 2018.
Also part of the campus transformation are the following academic, research, healthcare and athletic projects authorized by the Kentucky General Assembly:
o A $65.0 million renovation and expansion of the Gatton College of Business and Economics, financed by the University
o A new $112.0 million Academic Science Building financed by the University with Athletics funding $65.0 million of the project cost
o A $126.5 million renovation and expansion of Commonwealth Stadium financed completely by Athletics
o A $175.0 million renovation and expansion of the Student Center financed by the University o A $150.0 million renovation and upgrade of the UK HealthCare facilities financed completely by
UK HealthCare, which when complete will increase licensed bed capacity to 945 beds o A $65.0 million renovation and expansion of the College of Law building financed by $35.0 million
of state bonds and $30.0 million by the University o A new $265.0 million Research Building financed by the University and state bonds ($132.5
million each) As of June 30, 2015, grants and contracts of approximately $189.2 million, an increase of approximately
$11.5 million from the previous year, have been awarded to the University but not expended. The growth in available governmental awards will result in increased grant revenue in future periods.
Health care reform has initiated significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by governments or other third-party payers. The long-term impact is unknown, as the long period
18
between passage and its implementation lends to some level of uncertainty. UK HealthCare Hospital System will develop and execute strategies in an effort to mitigate the negative impacts and leverage opportunities.
The University will continue its long-term endowment investment strategy to maximize total returns, at an appropriate level of risk, while utilizing a spending rate policy to insulate programs funded by the endowment from temporary market volatility.
In July 2014, the University created a public/private partnership with Aramark that will continue to transform the dining services provided for students, faculty, staff, and the community. The 15 year partnership provides for $70.0 million in facilities investments by Aramark to be completed by fiscal year 2017-18.
Economic challenges will continue to have an impact on the future. However, management believes the University will be able to sustain its sound financial position and continue its progress toward becoming a nationally recognized public research institution.
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKYSTATEMENTS OF NET POSITION (in thousands)JUNE 30, 2015 AND 2014
2015 2014ASSETS AND DEFERRED OUTFLOWS OF RESOURCESCurrent Assets Cash and cash equivalents 621,961$ 387,863$ Notes, loans and accounts receivable, net 292,776 240,088 Investments 21,702 26,452 Inventories and other assets 46,814 40,436 Total current assets 983,253 694,839 Noncurrent Assets Restricted cash and cash equivalents 315,522 293,028 Endowment investments 1,231,557 1,215,226 Other long-term investments 275,001 248,108 Notes, loans and accounts receivable, net 338,953 59,412 Other noncurrent assets 283 702 Capital assets, net 2,336,640 1,979,404 Total noncurrent assets 4,497,956 3,795,880 Total assets 5,481,209 4,490,719 Deferred Outflows of Resources 13,755 - Total assets and deferred outflows of resources 5,494,964 4,490,719
LIABILITIES AND DEFERRED INFLOWS OF RESOURCESCurrent Liabilities Accounts payable and accrued liabilities 293,223 227,576 Unearned revenue 97,861 60,017 Long-term liabilities - current portion 81,403 71,078 Total current liabilities 472,487 358,671 Noncurrent Liabilities Unearned revenue 193,094 - Long-term liabilities 1,131,001 988,196 Total noncurrent liabilities 1,324,095 988,196 Total liabilities 1,796,582 1,346,867 Deferred Inflows of Resources 241,124 - Total liabilities and deferred inflows of resources 2,037,706 1,346,867
NET POSITIONNet investment in capital assets 1,422,560 1,347,778 Restricted Nonexpendable Scholarships and fellowships 140,739 134,970 Research 271,579 269,972 Instruction 80,062 78,897 Academic support 84,083 83,904 Other 8,611 8,522 Total restricted nonexpendable 585,074 576,265 Expendable Scholarships and fellowships 75,608 77,594 Research 92,833 95,614 Instruction 54,951 57,031 Academic support 59,860 56,801 Loans 10,908 10,445 Capital projects 128,734 101,357 Debt service 724 774 Auxiliary 15,523 15,198 Other 12,849 10,961 Total restricted expendable 451,990 425,775 Total restricted 1,037,064 1,002,040 Unrestricted 997,634 794,034
Total net position 3,457,258$ 3,143,852$
See notes to financial statements.19
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKYSTATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (in thousands)FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015 2014OPERATING REVENUESStudent tuition and fees 425,805$ 385,989$ Less: Scholarship allowances (122,869) (98,472) Net tuition and fees 302,936 287,517 Federal grants and contracts 168,125 160,384 State and local grants and contracts 92,269 67,755 Nongovernmental grants and contracts 29,805 28,040 Recoveries of facilities and administrative costs 48,154 47,159 Sales and services 54,112 54,765 Federal appropriations 17,535 17,921 County appropriations 21,975 20,338 Professional clinical service fees 223,291 203,721 Hospital services 1,323,652 1,101,662 Auxiliary enterprises: Housing and dining 42,246 51,347 Less: Scholarship allowances (2,695) (7,193) Net housing and dining 39,551 44,154 Athletics 88,928 73,957 Other auxiliaries 46,753 37,282 Other operating revenues 5,059 4,516 Total operating revenues 2,462,145 2,149,171 OPERATING EXPENSESEducational and general: Instruction 286,377 271,857 Research 243,511 245,313 Public service 181,537 211,479 Libraries 21,084 21,070 Academic support 73,078 71,482 Student services 38,648 36,790 Institutional support 55,623 49,295 Operations and maintenance of plant 71,104 76,895 Student financial aid 32,894 42,099 Depreciation 65,548 65,522 Total educational and general 1,069,404 1,091,802 Clinical operations (including depreciation of $2,743 in 2015 and $2,021 in 2014) 246,431 170,955 Hospital and clinics (including depreciation of $53,167 in 2015 and $51,460 in 2014) 1,134,123 1,014,732 Auxiliary enterprises: Housing and dining (including depreciation of $5,279 in 2015 and $5,446 in 2014) 31,240 48,208 Athletics (including depreciation of $6,031 in 2015 and $5,734 in 2014) 101,696 92,088 Other auxiliaries (including depreciation of $1,606 in 2015 and $1,079 in 2014) 25,719 22,414 Other operating expenses 640 1,384 Total operating expenses 2,609,253 2,441,583 Net loss from operations (147,108) (292,412) NONOPERATING REVENUES (EXPENSES) State appropriations 279,611 283,869 Gifts and non-exchange grants 105,506 96,771 Investment income (loss) 45,188 155,547 Interest on capital asset-related debt (27,691) (30,288) Other nonoperating revenues and expenses, net 8,988 7,449 Net nonoperating revenues (expenses) 411,602 513,348 Net income (loss) before other revenues, expenses, gains or losses 264,494 220,936 Capital grants and gifts 45,341 54,068 Additions to permanent endowments 7,758 7,578 Other, net (4,187) (1,236) Total other revenues (expenses) 48,912 60,410 INCREASE IN NET POSITION 313,406 281,346
NET POSITION, beginning of year 3,143,852 2,862,506
NET POSITION, end of year 3,457,258$ 3,143,852$
See notes to financial statements.20
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKYSTATEMENTS OF CASH FLOWS (in thousands)FOR THE YEARS ENDED JUNE 30, 2015 AND 2014
2015 2014CASH FLOWS FROM OPERATING ACTIVITIESStudent tuition and fees 301,454$ 288,922$ Grants and contracts 284,664 247,522 Recoveries of facilities and administrative costs 48,457 45,917 Sales and services 53,465 53,836 Federal appropriations 18,749 17,117 County appropriations 22,640 21,400 Payments to vendors and contractors (781,388) (721,086) Student financial aid (32,896) (42,082) Salaries, wages and benefits (1,644,420) (1,529,995) Professional clinic service fees 221,728 212,424 Hospital services 1,338,659 1,096,977 Auxiliary enterprise receipts 171,385 153,659 Loans issued to students (18,231) (21,188) Collection of loans to students 18,425 19,818 Self insurance receipts 61,352 51,230 Self insurance payments (56,750) (48,217) Other operating receipts (payments), net 4,445 3,544 Net cash provided (used) by operating activities 11,738 (150,202) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESState appropriations 279,611 283,869 Gifts and grants received for other than capital purposes: Gifts received for endowment purposes 7,782 7,554 Gifts received for other purposes 113,225 88,716 Agency and loan program receipts 227,347 225,252 Agency and loan program payments (229,398) (226,011) Other noncapital financing receipts (payments), net 18,165 30,270 Net cash provided (used) by noncapital financing activities 416,732 409,650 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESCapital grants and gifts 30,974 46,989 Purchases of capital assets (284,031) (139,955) Proceeds from capital debt 392,077 251,920 Payments to refunding bond agents (248,642) - Proceeds from sales of capital assets 10,180 - Principal paid on capital debt and leases (49,872) (50,900) Interest paid on capital debt and leases (34,849) (28,460) Other capital and related financing receipts (payments), net 5,385 1,569 Net cash provided (used) by capital and related financing activities (178,778) 81,163 CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales and maturities of investments 312,958 717,482 Interest and dividends on investments 19,850 13,723 Purchase of investments (342,511) (842,792) Net proceeds from sale of CLI stock, net of cash acquired 19,877 - Repayment of debt and other related to sale of CLI stock (3,274) - Net cash provided (used) by investing activities 6,900 (111,587) NET INCREASE IN CASH AND CASH EQUIVALENTS 256,592 229,024
CASH AND CASH EQUIVALENTS, beginning of year 680,891 451,867
CASH AND CASH EQUIVALENTS, end of year 937,483$ 680,891$
Reconciliation of net loss from operations to net cash provided (used) by operating activities: Net loss from operations (147,108)$ (292,412)$ Adjustments to reconcile net loss from operations to net cash provided (used) by operating activities: Depreciation expense 134,374 131,262 Change in assets and liabilities: Notes, loans and accounts receivable, net (327,943) (11,745) Inventories and other assets (5,800) (4,472) Accounts payable and accrued liabilities 22,358 26,255 Unearned revenue 230,882 (4,510) Long-term liabilities 13,959 5,420 Deferred inflows of resources 91,016 -
Net cash provided (used) by operating activities 11,738$ (150,202)$
See notes to financial statements.21
22
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The University of Kentucky (the University) is a component unit of the Commonwealth of Kentucky (the Commonwealth) and is included in the basic financial statements of the Commonwealth. The financial statements of the University include the operations of the University and its affiliated non-profit corporations (entities for which the University is financially accountable as defined by Statement No. 14 and amended by Statements No. 39 and No. 61 of the Governmental Accounting Standards Board (GASB), and which meet the definition of an affiliated corporation under Kentucky Revised Statutes (KRS) section 164A.550) as follows: the University of Kentucky Research Foundation and its for-profit subsidiaries (Kentucky Technology, Inc. and Coldstream Laboratories, Inc.); The Fund for Advancement of Education and Research in the University of Kentucky Medical Center (The Fund); University of Kentucky Gluck Equine Research Foundation, Inc.; University of Kentucky Humanities Foundation, Inc.; University of Kentucky Mining Engineering Foundation, Inc.; University of Kentucky Center on Aging Foundation, Inc.; and Central Kentucky Management Services, Inc. The affiliates are presented as blended component units since University management has operational responsibility for each affiliated corporation. The financial statements also include the operations of Kentucky Medical Services Foundation, Inc. (KMSF) a non-profit entity for which the University is financially accountable as defined by GASB, but which is not an affiliated corporation under KRS. KMSF is included within the University reporting entity as a blended component unit as KMSF provides its services entirely to the University. The financial statements also include the operations of organizational units of the University: the UK HealthCare Hospital System (the System), the Department of Intercollegiate Athletics (Athletics), the Kentucky Tobacco Research and Development Center (KTRDC), and WUKY Radio. The separate financial statements for the above entities can be found at: www.uky.edu/evpfa/controller/finst. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the GASB. GASB establishes standards for external financial reporting for public colleges and universities and requires that resources be classified for accounting and financial reporting purposes into the following net position categories:
Net investment in capital assets: Capital assets, net of accumulated depreciation and outstanding
principal balances of debt attributable to the acquisition, construction or improvement of those assets.
Restricted: Nonexpendable – Net position subject to externally imposed stipulations that they be maintained permanently by the University. Such assets include the principal of the University’s permanent endowment funds.
Expendable – Net position whose use by the University is subject to externally imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time.
Unrestricted: Net position whose use by the University is not subject to externally imposed stipulations. Unrestricted net position may be designated for specific purposes by action of management or the Board of Trustees (the board) or may otherwise be limited by contractual agreements with outside parties.
The financial statement presentation is intended to provide a comprehensive, entity-wide perspective of the University’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows.
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Summary of Significant Accounting Policies Accrual Basis. The financial statements have been prepared on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. The University reports as a Business Type Activity (BTA) as defined by GASB Statement No. 35. BTAs are those activities that are financed in whole or part by fees charged to external parties for goods and services. Cash and Cash Equivalents. The University considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Noncurrent cash and cash equivalents include plant funds allocated for capital projects, debt service reserves and endowment fund cash pending transfer to the custodian for investment. Cash and cash equivalents held by bond trustees and the University’s endowment fund managers are included in investments. Notes, Loans and Accounts Receivable. This classification consists of tuition and fee charges to students; charges for auxiliary enterprise services provided to students, faculty and staff; and loans to students. Also included are patient accounts receivable, amounts due from sponsors for reimbursement of expenses made pursuant to contracts and grants, amounts due under multimedia rights contract and service concession arrangements, and pledges that are verifiable, measurable and expected to be collected. Accounts receivable are recorded net of estimated uncollectible amounts based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Inventories. Inventories are stated principally at the lower of average cost or market. Pooled Endowment Funds. All endowments are managed in a consolidated investment pool, which consists of more than 2,000 named funds. All contributing endowments participate in the income and appreciation of the pool on a per unit basis commensurate with their contribution to the pool. New endowments purchase units in the pool at the current unit value, which is calculated each month based on the fair value of the pool investments divided by the number of pool units outstanding. The market value method of accounting for pooled endowment funds is employed to ensure proper distribution of market price changes, realized gains (losses) on sales, accrued income earned, and distribution of investment earnings for expenditure by participating funds. In accordance with the Kentucky Uniform Prudent Management of Institutional Funds Act (UPMIFA), as adopted by the Commonwealth in July 2010, the University employs a total return method for establishing investment objectives and spending policies designed to achieve financial equilibrium for endowment funds over the long term. The University makes expenditure decisions in accordance with UPMIFA and donor gift agreements. UPMIFA prescribes guidelines for expenditure of a donor-restricted endowment fund (in the absence of overriding, explicit donor stipulations) and focuses on the entirety of a donor-restricted endowment fund, that is, both the original gift amount(s) and net appreciation. In accordance with the standard of prudence prescribed by UPMIFA and consistent with industry standards, the University has adopted a spending policy with the long-term objective to maintain the purchasing power of each endowment and provide a predictable and sustainable level of income to support current operations. Effective for fiscal year 2015 and thereafter, the University established a “hybrid” spending policy, which includes both the market value of the endowment and the current level of inflation in determining spending each year. Annual spending is calculated by taking a weighted average comprising 60% of the prior year’s spending, adjusted for inflation, and 40% of the amount that results when the target annual spending rate of four percent is applied to the average market value of the endowment over the preceding 36 months. The spending amount determined by the formula is constrained so that the calculated rate is at least three percent, and not more than six percent, of the current endowment market value. For fiscal year 2014, spending was based on four percent of the average endowment market value for the preceding 60 months. The University also utilizes an endowment management fee to support internal management and fundraising costs related to the endowment. For the years ended June 30, 2015 and 2014, the University’s annual endowment management fee was 0.25%.
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To protect endowment funds from permanent impairment of value, spending and management fee withdrawals are suspended on endowments with a market value less than the contributed value by more than 20%. Additionally, endowments with a market value less than the contributed value by more than 10% undergo a formal review to determine the appropriate level of spending in accordance with various factors set forth in UPMIFA. All donor restrictions and stipulations prevail in decisions regarding preservation and spending of endowment funds. The components of the University’s spending policy distribution and management fee for the years ended June 30, 2015 and 2014 are as follows (in thousands):
2015 2014
Gross spending policy distribution 38,340$ 36,381$ Reinvested spending policy distribution (17,903) (16,640)
Net spending policy distribution 20,437$ 19,741$
Management fee 2,718$ 2,525$
Investments. Investments in marketable debt and equity securities are carried at fair value, as determined by the major securities markets. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Position. Other investments, including guaranteed investment contracts, repurchase agreements and certificates of deposit are valued at face value and are fully collateralized. The University’s financial statements include alternative investments, such as limited partnerships, that are not publicly traded. Certain of these alternative investments are carried at their estimated fair values as of March 31, 2015 and 2014, as adjusted by cash receipts, cash disbursements, and securities distributions through June 30, 2015 and 2014, at a total estimated fair value of $211.4 million and $154.1 million, respectively. Other alternative investments are carried at estimated fair values as of December 31, 2014 and 2013, at a total estimated value of $950,000 and $1.3 million, respectively. In addition, the University also has alternative investments in investment funds that are not themselves publicly traded and thus do not have publicly reported market values, but whose underlying assets consist of publicly traded investments for which fair values are established by the major securities markets. Such alternative investments are carried at fair value of approximately $484.6 million and $492.9 million at June 30, 2015 and 2014, respectively. The University believes that the total carrying amount of its alternative investments valued at $747.9 million and $695.6 million at June 30, 2015 and 2014, respectively, is a reasonable estimate of fair value. The University’s outstanding commitment to alternative investments is approximately $195.4 million and $122.5 million as of June 30, 2015 and 2014, respectively. Capital Assets. Capital assets are stated at cost at date of acquisition or, in the case of gifts, at fair market value at date of gift. The University capitalizes interest costs as a component of construction in progress based on the interest cost of borrowing specifically for a currently active project, net of interest earned on investments acquired with the proceeds of the borrowing. The University also capitalizes interest costs as a component of construction in progress on projects funded by unrestricted funds based on the interest costs of borrowings no longer associated with a specific project. The calculation is based on a project’s average expenditures times the weighted average interest rate on borrowings. Equipment with a unit cost of $2,000 or more ($1,000 for computers) and having an estimated useful life of greater than one year is capitalized. Institutional software costing more than $400,000 is capitalized. Renovations to buildings, infrastructure and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense is incurred.
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Depreciation of capital assets is computed on a straight-line basis over the estimated useful lives of the respective assets, generally 75 years for new student housing buildings, 40 years for other buildings, 10 – 25 years for land improvements, building improvements and infrastructure, 10 years for library books and capitalized software, and 5 – 20 years for equipment and vehicles. The University capitalizes, but does not depreciate, works of art, historical treasures and certain library materials that are held for exhibition, education, research and public service. Deferred Outflows of Resources. A deferred outflow of resources is a loss in net position by the University that is applicable to a future reporting period. Deferred outflows of resources are reported in the statement of net position, but are not recognized in the financial statements as expense until in the related period. Deferred outflows of resources of $13.8 million as of June 30, 2015, consisted of unamortized difference between the reacquisition price and net carrying amount of the refunded debt. Unearned Revenue. Unearned revenue consists primarily of amounts received from grant and contract sponsors that have not yet been earned under the terms of the agreement. Unearned revenue also includes amounts received from multimedia rights pursuant to contract agreement and amounts received in advance of an event, such as advance athletic ticket sales relating to future fiscal years and unearned summer school revenue. Unearned revenue is recognized in the period to which the grant, event or semester relates. Compensated Absences. The amount of vacation leave earned but not taken by employees at June 30, 2015 is recorded as a liability by the University. Temporary disability leave payable upon termination under the University’s payout policy is also recorded as a liability. Compensated absence liabilities are computed using the pay rates in effect at the statement of net position date plus an additional amount for compensation-related payments such as Social Security and Medicare taxes computed using rates in effect at that date. Deferred Inflows of Resources. A deferred inflow of resources is a gain in net position by the University that is applicable to a future reporting period. Deferred inflows of resources are reported in the statement of net position but are not recognized in the financial statements as revenue until in the related period. Scholarship Allowances. Student tuition and fees are presented net of scholarship allowances applied to student accounts. Stipends and other payments made directly to students are presented as student financial aid expenses. Scholarship allowances are the difference between the stated charge for goods and services provided by the University and the amount that is paid by students and/or third parties making payments on the students’ behalf. Certain governmental grants, such as Pell grants and other federal and state programs similar to Pell, are recorded as nonoperating revenues; other governmental and nongovernmental grants are recorded as operating revenues in the University’s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship allowance. Hospital and Clinical Services Revenues. Hospital and clinical services revenues are reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered, including contractual allowances and estimated retroactive adjustments under reimbursement programs with third-party payers, less a provision for doubtful accounts. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Inpatient acute care services and substantially all outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Inpatient skilled nursing services are paid at prospectively determined per diem rates that are based on the patients’ acuity. Certain inpatient nonacute services and defined medical education costs are paid based on a cost reimbursement methodology. The System is reimbursed for certain services at tentative rates with final settlement determined after submission of annual cost reports by the System and audits thereof by the Medicare fiscal intermediary. Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed under a cost reimbursement methodology for certain services and at prospectively determined rates for all other services.
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The System is reimbursed for cost reimbursable services at tentative rates with final settlement determined after submission of annual cost reports by the System and audits thereof by the Medicaid fiscal intermediary. Revenue from the Medicare and Medicaid programs accounted for approximately 28% and 27%, respectively, of the System’s net patient services revenues before the provision for doubtful accounts for the year ended June 30, 2015 and approximately 25% and 24%, respectively for the year ended June 30, 2014. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The System also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the System under these agreements includes prospectively determined rates per discharge, discounts from established charges and prospectively determined daily rates. The System provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Since the System does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. Electronic Health Records Incentive Program. The Electronic Health Records Incentive Program, enacted as part of the American Recovery and Reinvestment Act of 2009, provides for incentive payments under both the Medicare and Medicaid programs to eligible physicians, dentists and hospitals that demonstrate meaningful use of certified electronic health records technology. Payments under the Medicare program are generally made for up to four years based on a statutory formula. Payments under the Medicaid program are generally made for up to four years based upon a statutory formula, as determined by the state, which is approved by the Centers for Medicare and Medicaid Services. Payment under both programs is contingent on the System, The Fund and KMSF continuing to meet escalating meaningful use criteria and any other specific requirements that are applicable for the reporting period. The final amount for any payment year is determined based upon an audit by the fiscal intermediary. Events could occur that would cause the final amounts to differ materially from the initial payments under the program. The System recognizes revenue when management is reasonably assured it will meet all of the meaningful use objectives and any other specific grant requirements applicable for the reporting period. In fiscal year 2015, the System was in the fourth year under the Medicare programs and recorded $1.1 million, which is included in hospital services revenue within operating revenues in the Statement of Revenues, Expenses, and Changes in Net Position. In fiscal year 2014, the System was in the third year of the programs and recorded $1.7 million.
In fiscal year 2015, the System received no revenue under the Medicaid program as their program ended in fiscal year 2014. In fiscal year 2014, the System recorded $564,000 in hospital services revenue. In addition, during the years ended June 30, 2015 and 2014, KMSF applied for and received $366,000 and $269,000, respectively, in Medicaid health information technology (HIT) funds and $1.3 million and $1.0 million, respectively, in Medicare HIT funds, which is included in professional clinical service fees in the Statement of Revenues, Expenses and changes in Net Position. In fiscal year 2015, The Fund completed the first-year requirements under the Medicaid program and recorded $298,000 in state and local grants and contracts within operating revenues in the Statement of Revenues, Expenses and Changes in Net Position. Income Taxes. The University is an agency and instrumentality of the Commonwealth, pursuant to Kentucky Revised Statutes sections 164.100 through 164.280. Accordingly, the University is excluded from federal income taxes as an organization described in Section 115 of the Internal Revenue Code of 1986, as amended. Each of the University’s affiliated non-profit organizations has received a determination from the Internal Revenue Service granting exemption from federal income taxation pursuant to the provisions of Internal Revenue Code section 501(c)(3). KMSF is a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code.
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Restricted Asset Spending Policy. The University’s policy is that restrictions on assets cannot be fulfilled by the expenditure of unrestricted funds for similar purposes. The determination on whether restricted or unrestricted funds are expended for a particular purpose is made on a case-by-case basis. Restricted funds remain restricted until spent for the intended purpose.
Operating Activities. The University defines operating activities, as reported on the Statement of Revenues, Expenses and Changes in Net Position, as those that generally result from exchange transactions, such as payments received for providing goods and services and payments made for goods and services received. Nearly all of the University’s expenses are from exchange transactions. Certain significant revenues relied upon for operations, such as state appropriations, gifts and investment income, are recorded as nonoperating revenues in accordance with GASB Statement No. 35. The University has classified operating expenses based upon their functional classifications. Operating expenses by natural classification are presented in Note 24. During fiscal years 2015 and 2014, departmental research in nonsponsored accounts of approximately $61.6 million and $67.7 million, respectively, was recorded as research expense in the Statements of Revenues, Expenses and Changes in Net Position. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements include estimates for items such as bad debt and contractual allowances, estimated third-party payer settlements, self-insurance reserves, accrued expenses and other liability accounts. Recent Accounting Pronouncements. As of June 30, 2015, the GASB has issued the following applicable statements to the University but not yet implemented.
GASB Statement No. 72, Fair Value Measurement and Application, issued February 2015. The provisions of this Statement are effective for fiscal years beginning after June 15, 2015. This statement requires disclosures to be made about fair value measurements, the level of fair value hierarchy, and valuation techniques. The University is currently evaluating the effect Statement No. 72 will have on its financial statements.
GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and 68, issued June 2015. The provisions of this Statement are effective for fiscal years beginning after June 15, 2016. This statement establishes requirements for defined contribution pensions plans not administered through trusts that meet certain criteria. The University has certain employees who were age 40 or older prior to the establishment of each group retirement plan that qualify for minimum annual retirement benefits. (see note 17) The University is currently evaluating the effect statement No. 73 will have on its financial statements.
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, issued June 2015. The provisions of this Statement are effective for fiscal years beginning after June 15, 2017. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expenses. This statement addresses employers whose employees are provided defined contribution OPEB. The University is working with an actuary to determine the impact of the pronouncement. Although specific amounts are not yet known, this is expected to result in a significant liability for the unfunded portion being recorded on the University’s financial statements.
GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles (GAAP) for State and Local Governments, issued June 2015. The provisions of this Statement are effective for fiscal years beginning after June 15, 2015. This statement supersedes Statement No. 55 and raises the category of GASB Implementation Guides in the GAAP hierarchy. The University is currently evaluating the effect Statement No. 76 will have on its financial statements.
Reclassifications. Certain reclassifications have been made to the fiscal year 2014 financial statements to conform to the fiscal year 2015 financial statement presentation. These reclassifications had no effect on change in net position.
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2. DEPOSITS AND INVESTMENTS
The fair value of deposits and investments, by type, at June 30, 2015 and 2014 are as follows (in thousands):
2015 2014
Cash and cash equivalents 213,775$ 109,551$ Certificates of deposit 36,729 26,715 Common and preferred stocks 51,026 63,668 Corporate fixed income securities 60,817 56,742 Deposits with banks and the Commonwealth of Kentucky 81,871 111,619 Government agency fixed income securities 91,926 69,423 Guaranteed investment contracts 3,786 2,726 Other 148 152 Pooled absolute return funds 122,347 140,497 Pooled equity funds 332,258 353,946 Pooled fixed income funds 821,949 615,555 Pooled global tactical allocation funds 88,047 91,544 Pooled long/short equity funds 173,669 145,705 Pooled private equity funds 157,977 120,515 Pooled real estate funds 105,708 81,454 Pooled diversified inflation strategy funds 101,210 115,915 Repurchase agreements 487 39,998 State and municipal fixed income securities 12,967 13,258 U.S. Treasury fixed income securities 9,046 11,694
Total 2,465,743$ 2,170,677$
2015 2014
Statement of Net Position classificationCurrent cash and cash equivalents 621,961$ 387,863$ Current investments 21,702 26,452 Restricted cash and cash equivalents 315,522 293,028 Endowment investments 1,231,557 1,215,226 Other long-term investments 275,001 248,108
Total 2,465,743$ 2,170,677$
Alternative investments totaling approximately $747.9 million and $695.6 million as of June 30, 2015 and 2014, respectively, are included within pooled absolute return funds, pooled global tactical allocation funds, pooled long/short equity funds, pooled private equity funds, pooled real estate funds, and pooled diversified inflation strategy funds in the summary schedule of investments above (refer to Note 1, Summary of Significant Accounting Policies, regarding valuation of alternative investments). Deposit and Investment Policies. The Board is responsible for establishing deposit and investment policies. Once established, the Board has delegated day-to-day management to the Treasurer of the University. Deposit and investment policies are developed to ensure compliance with state laws and regulations as well as to establish and maintain sound financial management practices. The University follows Kentucky Revised Statute KRS 42.500 for the investment of public funds, which lists allowable investment instruments including: obligations of the United States or a United States government agency; obligations of any corporation of the United States government or government-sponsored enterprise; various highly rated fixed income securities including collateralized and uncollateralized certificates of deposit, bankers acceptances, commercial paper, state or local government securities, United States denominated
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corporate, Yankee and Eurozone securities and asset-backed securities; highly rated mutual funds comprised of any of the above allowable investments; and state and local property tax certificates of delinquency secured by interests in real property. For purposes of investment management, the majority of the University’s deposits and investments can be grouped into five significant categories, as follows: Overnight investments include deposits, money market funds and repurchase agreements with local
banks, the Commonwealth and other financial institutions. Bond revenue fund investments held by the Treasurer of the Commonwealth as required by the
University’s bond trust indentures and invested in pooled fixed income funds managed by the Commonwealth.
Short-term and intermediate-term investments: o managed by the University, including individual securities purchased and held by the
University, o managed by the Commonwealth in pooled fixed income funds, and o managed by an external manager in a low duration strategy.
Debt service sinking fund investments required by the University’s bond trust indentures and held by the bond trustees.
Endowment investments administered by the University and managed using external investment managers.
The Treasurer manages overnight, short-term and intermediate-term investments based on the Operating Fund Investment Policy. The University’s policy for the investment of bond revenue and debt service reserve funds is governed by each respective bond’s trust indenture. The Investment Committee of the Board establishes and maintains the University’s Endowment Investment Policy. Deposit and Investment Risks. The University’s deposits and investments are exposed to various risks, including credit, interest rate and foreign currency risk. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could affect the investment amounts in the Statements of Net Position. Credit Risk. Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligation, causing the University to experience a loss of principal. As a means of limiting its exposure to losses arising from credit risk, the University’s investment policies limit the exposure of its various investment types as follows: Overnight investment (deposits, money market funds and repurchase agreements) policies minimize
credit risk in several ways. Deposits are governed by state law which requires full collateralization for balances exceeding amounts covered by the Federal Deposit Insurance Corporation (FDIC). The University’s deposits are insured up to $250,000 at each FDIC insured institution. Credit risk on deposits in excess of FDIC coverage and on repurchase agreements with local banks is mitigated by the issuing financial institution’s pledge of specific U.S. Treasury or agency securities, held in the name of the University by the Federal Reserve Bank. Credit risk on repurchase agreements with the Commonwealth is mitigated by the Commonwealth’s requirement that providers of overnight repurchase agreements collateralize these investments at 102% of face value with U.S. Treasury or agency securities, pledged in the name of the Commonwealth. Money market fund portfolios consist of securities eligible for short-term investments.
Bond revenue fund investments held in the Commonwealth’s investment pools can invest in U.S. Treasury and agency securities; commercial paper, asset-backed securities or qualified mutual funds rated in the highest category by a nationally recognized statistical rating organization; certificates of deposit, bankers acceptances, state or local government securities and corporate, Yankee and Eurodollar securities rated in one of the three highest categories by a nationally recognized statistical rating organization; and state and local property tax certificates of delinquency secured by interests in real property.
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Short-term and intermediate-term investments managed by the University and those held in the Commonwealth’s investment pools are subject to the same credit quality restrictions as denoted above for bond revenue fund investments. The investment guidelines for the low duration strategy managed by an external manager require that a minimum of 85% of the portfolio holdings are investment grade and a minimum A- portfolio average quality is maintained, with no single credit industry exceeding 15% of the portfolio.
Investment securities held in bond debt service reserve funds may be invested and reinvested solely in bonds or interest bearing notes of the United States government.
Endowment managers are permitted to use derivative instruments to limit credit risk.
At June 30, 2015, and 2014, respectively, the credit quality of the University’s fixed income investments is summarized below (in thousands):
BBB/ Below Rating Not
AAA/Aaa AA/Aa A Baa BB/Ba B B Not rated Applicable Total
Cash and cash equivalents 200,080$ -$ -$ -$ -$ -$ -$ 13,695$ -$ 213,775$
Certificates of deposit - - - - - - - 36,729 - 36,729
Corporate fixed income 8,088 3,148 19,277 21,859 5,604 2,075 375 391 - 60,817
Government agency fixed income 10 90,858 - 195 863 - - - - 91,926
Guaranteed investment contracts - 159 - - - - - 3,627 - 3,786
Pooled fixed income - 1,175 - - - - - 820,774 - 821,949
Repurchase agreements - - - - - - - 487 - 487
State and municipal fixed income 1,834 11,133 - - - - - - - 12,967
U.S. Treasury fixed income - - - - - - - - 9,046 9,046
Total 210,012$ 106,473$ 19,277$ 22,054$ 6,467$ 2,075$ 375$ 875,703$ 9,046$ 1,251,482$
2015
S&P/Moody's Credit Ratings
BBB/ Below Rating Not
AAA/Aaa AA/Aa A Baa BB/Ba B B Not rated Applicable Total
Cash and cash equivalents 73,674$ -$ -$ -$ -$ -$ -$ 35,877$ -$ 109,551$
Certificates of deposit - - - - - - - 26,715 - 26,715
Corporate fixed income 6,005 2,471 15,569 23,844 5,607 2,355 496 395 - 56,742
Government agency fixed income - 68,690 - 733 - - - - - 69,423
Guaranteed investment contracts - 121 - - - - - 2,605 - 2,726
Pooled fixed income - - - - - - - 615,555 - 615,555
Repurchase agreements - - - - - - - 39,998 - 39,998
State and municipal fixed income1,840 2,600 8,818 - - - - - - 13,258
U.S. Treasury fixed income - - - - - - - - 11,694 11,694
Total 81,519$ 73,882$ 24,387$ 24,577$ 5,607$ 2,355$ 496$ 721,145$ 11,694$ 945,662$
S&P/Moody's Credit Ratings
2014
Custodial Credit Risk. Custodial credit risk is the risk that, in the event of the failure of the counterparty, the University will not be able to recover the value of its investment or collateral securities that are in possession of an outside party.
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As a means of limiting its exposure to losses arising from custodial credit risk, the University’s investment policies limit the exposure of its various investment types as follows: Overnight investments (deposits, money market funds and repurchase agreements) are not exposed to
custodial credit risk other than repurchase agreements with the Commonwealth, which are held in the Commonwealth’s name. Deposits and money market investments are held in the University’s name by various financial institutions.
Bond revenue fund investments held in the Commonwealth’s investment pools are held in the Commonwealth’s name by the Commonwealth’s custodian.
Short-term and intermediate-term investments held by the Commonwealth for the benefit of the University are invested in the Commonwealth’s investment pools and are held in the name of the Commonwealth by the Commonwealth’s custodian. Short-term and intermediate-term investments managed by the University are held in the University’s name in a safekeeping account. The low duration strategy investments managed by an external manager are held in the University’s name by the University’s custodian.
Investment securities held in bond debt service sinking funds are held by the respective bond trustee in a specific trust account for the benefit of the University and bondholders.
Endowment investments are held in the University’s name by the University’s custodian.
At June 30, 2015 and 2014, respectively, the following University deposit and investment balances held in the name of the Commonwealth, included in the above significant investment types, were exposed to custodial credit risk as follows (in thousands):
Bond Other
Overnight Revenue Short-term State
Investments Investments Investments Investments Total
Uninsured and collateralized with securities
held by the pledging financial institution's
trust department or agent but not in the
University's name -$ -$ -$ -$ -$
Uninsured, not registered in the name of the
University and held by the counterparty
but not in the University's name - 643,430 60,000 25,536 728,966
Total -$ 643,430$ 60,000$ 25,536$ 728,966$
2015
Bond Other
Overnight Revenue Short-term State
Investments Investments Investments Investments Total
Uninsured and collateralized with securities
held by the pledging financial institution's
trust department or agent but not in the
University's name 42,000$ -$ -$ -$ 42,000$
Uninsured, not registered in the name of the
University and held by the counterparty
but not in the University's name - 435,360 60,000 25,885 521,245
Total 42,000$ 435,360$ 60,000$ 25,885$ 563,245$
2014
Concentrations of Credit Risk. University investments can be exposed to a concentration of credit risk if significant amounts are invested in any one issuer.
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As a means of limiting its exposure to concentrations of credit risk, the University’s investment policies limit concentrations in various investment types as follows: Overnight investments (deposits, money market funds and repurchase agreements) are not limited to a
maximum amount that may be invested in one issuer. However, all such deposits in excess of federal deposit insurance are required to be fully collateralized by U.S. Treasury and/or U.S. agency securities or other similar investments as provided by KRS 41.240.
Bond revenue fund investments held in the Commonwealth’s investment pools are limited as follows: U.S. dollar denominated corporate and Yankee securities issued by foreign and domestic issuers shall not exceed 35% of an individual pool and $25.0 million per issuer, inclusive of commercial paper, bankers acceptances and certificates of deposit per individual pool; and U.S. dollar denominated sovereign debt shall not exceed five percent of any individual portfolio and $25.0 million per issuer.
Short-term and intermediate-term investments managed by the University and those held in the Commonwealth’s investment pools are subject to the same credit concentration restrictions as denoted above for the bond revenue fund investments. Investments in the low duration strategy managed by an external manager are limited such that no single credit industry shall exceed 15% of the portfolio at purchase.
There is no specific limit on the maximum amount of investment securities held in bond debt service sinking funds that may be invested in one issuer. However, such investments are limited to bonds or interest bearing notes of the U.S. government.
Endowment fixed income managers are limited to a maximum investment in any one issuer of no more than five percent of total investments excluding sovereign debt of governments belonging in the Organization for Economic Cooperation and Development and U.S. agencies.
At June 30, 2015 and 2014, the University had no investments in any one issuer, other than U.S. Treasury and/or agency securities, that represented five percent or more of total investments. Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As a means of limiting its exposure to fair value losses arising from increasing interest rates, the University’s investment policies limit the maturity of its various investment types as follows: Overnight investments (deposits, money market funds and repurchase agreements) have limited
exposure to interest rate risk due to the short-term nature of the investment. The University requires that all deposits and repurchase agreements be available for use on the next business day.
Bond revenue fund investments and short-term investments held in the Commonwealth’s short-term investment pool are limited to an average maturity that does not exceed 90 days. Such investments in the Commonwealth’s intermediate-term investment pool must maintain an effective duration of less than three years.
Short-term and intermediate-term investments managed by the University are generally limited to a maximum maturity of 24 months and those held in the Commonwealth’s investment pools are subject to the same maturity and duration limits as denoted above for bond revenue fund investments. The portfolio duration of the low duration strategy investment managed by an external manager must be within a range of +/- 0.5 years of the Barclays Capital U.S. Government/Credit 1-5 Year Index.
Investment securities held in bond debt service sinking funds are required to have a maturity no later than two years from the date of the investment.
Endowment managers are permitted to use derivative instruments to limit interest rate risk. Additionally, endowment investments held by core-plus fixed income managers are limited to a duration that is within two years of the duration of the Barclays Capital U.S. Aggregate Bond Index and unconstrained fixed income strategies have been implemented to further protect against rising interest rates.
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For June 30, 2015, below is the maturity distribution of the University’s fixed income investments (in thousands):
Investment TypeLess
than 1 1-3 3-5 5-10Greater than 10
Managedbased onduration Total
Cash and cash equivalents 213,775$ -$ -$ -$ -$ -$ 213,775$
Certificates of deposit 36,729 - - - - - 36,729
Corporate fixed income 2,410 21,178 17,349 7,009 4,822 8,049 60,817 Government agency fixed income 1,613 17,306 68,606 1,336 507 2,558 91,926
Guaranteed investment contracts - 56 - 159 3,571 - 3,786
Pooled fixed income - - - - - 821,949 821,949
Repurchase agreements 487 - - - - - 487
State and municipal fixed income 5,116 7,271 580 - - - 12,967
U.S. Treasury fixed income - 54 47 - - 8,945 9,046
Total 260,130$ 45,865$ 86,582$ 8,504$ 8,900$ 841,501$ 1,251,482$
2015
Maturities in Years
For June 30, 2014, below is the maturity distribution of the University’s fixed income investments (in thousands):
Investment TypeLess
than 1 1-3 3-5 5-10Greater than 10
Managedbased onduration Total
Cash and cash equivalents 109,551$ -$ -$ -$ -$ -$ 109,551$
Certificates of deposit 26,715 - - - - - 26,715
Corporate fixed income 2,305 12,305 19,004 7,592 9,395 6,141 56,742
Government agency fixed income - - 59,584 7,205 - 2,634 69,423
Guaranteed investment contracts - - 102 120 2,504 - 2,726
Pooled fixed income - - - - - 615,555 615,555
Repurchase agreements 39,998 - - - - - 39,998
State and municipal fixed income 250 10,496 2,512 - - - 13,258
U.S. Treasury fixed income 10 29 47 23 - 11,585 11,694
Total 178,829$ 22,830$ 81,249$ 14,940$ 11,899$ 635,915$ 945,662$
2014
Maturities in Years
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At June 30, 2015 and 2014, the University had the following investments managed based on duration (in thousands):
Modified Modified
Duration Duration
Investment Type Fair Value (Years) Fair Value (Years)
Corporate fixed income 8,049$ 0.7 6,141$ 0.4
Government agency fixed income 2,558 0.4 2,634 0.5
Pooled fixed income
Commonwealth of Kentucky intermediate pool 110,494 1.1 60,028 1.3
Commonwealth of Kentucky limited pool 618,471 0.1 461,218 0.1
Kentucky Technology, Inc. 57 2.3 52 2.2
KMSF 1,776 2.9 1,860 3.6
Other endowment investments 2,149 5.8 2,283 5.4
Pooled endowment fund 89,002 1.6 90,114 0.6
U.S. Treasury fixed income 8,945 3.2 11,585 2.5
Total 841,501$ 635,915$
2015 2014
Foreign Currency Risk. Foreign currency risk is the risk that fluctuations in exchange rates will adversely affect the fair value of an investment or deposit. The University’s exposure to foreign currency risk derives from certain endowment investments. The University’s endowment investment policy allows fixed income managers to invest a portion of their portfolios in non-U.S. securities. Additionally, the investment policy allows various pooled fund managers to invest in accordance with the guidelines established in each individual fund’s prospectus, which allows for investment in non-U.S. securities. Endowment managers are permitted to use derivative instruments to limit foreign currency risk. As of June 30, 2015 and 2014, the following endowment investments were subject to foreign currency risk (in thousands):
2015 2014
Common stock 38,289$ 51,320$ Pooled private equity funds 6,971 8,712 Pooled real estate funds 5,174 - Cash equivalents 720 372
Total 51,154$ 60,404$
Fair Value
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3. NOTES, LOANS AND ACCOUNTS RECEIVABLE, NET
Notes, loans and accounts receivable as of June 30, 2015 and 2014 are as follows (in thousands):
2015Gross Net
Receivable Allowance Receivable
Accrued interest receivable 1,885$ -$ 1,885$ Dentistry patient accounts 2,766 (696) 2,070 Hospital patient accounts 176,436 (40,923) 135,513 KMSF patient accounts 32,421 (4,003) 28,418 Multimedia rights receivable 210,000 - 210,000 Pledges receivable 78,537 (26,650) 51,887 Reimbursement receivable - federal appropriations 1,604 - 1,604 Reimbursement receivable - grants and contracts 32,793 (400) 32,393 Service concession arrangements 98,832 - 98,832 Student loans 29,747 (3,103) 26,644 Student receivables 28,189 (16,328) 11,861 Other 30,622 - 30,622
Total 723,832$ (92,103)$ 631,729$
Current portion 292,776$ Noncurrent portion 338,953
Total 631,729$
2014
Gross NetReceivable Allowance Receivable
Accrued interest receivable 2,807$ -$ 2,807$ Dentistry patient accounts 2,584 (690) 1,894 Hospital patient accounts 146,604 (26,042) 120,562 Hospital third-party payer settlements 6,490 - 6,490 KMSF patient accounts 29,317 (6,365) 22,952 Pledges receivable 76,279 (28,316) 47,963 Reimbursement receivable - federal appropriations 2,699 - 2,699 Reimbursement receivable - grants and contracts 31,663 (575) 31,088 Student loans 29,701 (2,854) 26,847 Student receivables 22,934 (13,256) 9,678 Other 26,520 - 26,520
Total 377,598$ (78,098)$ 299,500$
Current portion 240,088$ Noncurrent portion 59,412
Total 299,500$
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4. CAPITAL ASSETS, NET Capital assets as of June 30, 2015 and capital asset activity for the year ended June 30, 2015 are summarized below (in thousands):
June 30, 2014 Additions Deletions June 30, 2015
Land 72,394$ 953$ -$ 73,347$ Land improvements - nonexhaustible 42,643 3,583 - 46,226 Land improvements - exhaustible 70,231 4,048 - 74,279 Buildings 2,209,332 247,090 24,873 2,431,549 Fixed equipment - communications 96,579 4,253 216 100,616 Infrastructure 95,385 4,619 48 99,956 Equipment 571,221 59,158 51,250 579,129 Vehicles 21,400 1,750 1,247 21,903 Library materials 144,330 2,565 962 145,933 Nondepreciable library materials 6,651 - - 6,651 Capitalized software 142,580 13,486 151 155,915 Art 11,459 327 - 11,786 Certificate of need license 11,609 - - 11,609 Construction in progress 91,637 213,434 38,180 266,891
3,587,451 555,266 116,927 4,025,790
Accumulated Depreciation Land improvements - exhaustible 55,278 2,741 - 58,019 Buildings 822,366 59,489 15,860 865,995 Fixed equipment - communications 59,347 6,276 191 65,432 Infrastructure 33,001 3,631 17 36,615 Equipment 408,068 45,707 36,025 417,750 Vehicles 18,252 1,461 1,157 18,556 Library materials 134,477 2,706 - 137,183 Capitalized software 77,258 12,363 21 89,600
1,608,047 134,374 53,271 1,689,150
Capital assets, net 1,979,404$ 420,892$ 63,656$ 2,336,640$
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Capital assets as of June 30, 2014 and capital asset activity for the year ended June 30, 2014 are summarized below (in thousands):
June 30, 2013 Additions Deletions June 30, 2014
Land 71,480$ 914$ -$ 72,394$ Land improvements - nonexhaustible 40,492 2,151 - 42,643 Land improvements - exhaustible 68,472 1,788 29 70,231 Buildings 2,184,296 36,216 11,180 2,209,332 Fixed equipment - communications 90,775 5,862 58 96,579 Infrastructure 93,561 1,915 91 95,385 Equipment 553,165 46,676 28,620 571,221 Vehicles 20,684 1,344 628 21,400 Library materials 142,576 2,212 458 144,330 Nondepreciable library materials 6,618 33 - 6,651 Capitalized software 135,824 6,756 - 142,580 Art 11,148 311 - 11,459 Certificate of need license 11,609 - - 11,609 Construction in progress 34,762 82,411 25,536 91,637
3,465,462 188,589 66,600 3,587,451
Accumulated Depreciation Land improvements - exhaustible 52,709 2,595 26 55,278 Buildings 772,551 57,367 7,552 822,366 Fixed equipment - communications 53,382 6,023 58 59,347 Infrastructure 29,561 3,514 74 33,001 Equipment 387,387 45,289 24,608 408,068 Vehicles 17,383 1,497 628 18,252 Library materials 131,496 2,981 - 134,477 Capitalized software 65,262 11,996 - 77,258
1,509,731 131,262 32,946 1,608,047
Capital assets, net 1,955,731$ 57,327$ 33,654$ 1,979,404$
At June 30, 2015, the University had construction projects in progress totaling approximately $845.9 million in scope. The estimated cost to complete these projects was approximately $580.2 million. Such construction was principally financed by cash reserves, gifts and grants, and proceeds from the University’s general receipts bonds. Interest costs incurred during construction, net of related investment income, are capitalized. Total interest capitalized was $8.0 million for 2015 and $454,000 for 2014. During fiscal years 2015 and 2014, the University utilized capital leases to acquire various items of equipment. As of June 30, 2015 and 2014, the net book value of land, buildings, equipment and software acquired through capital leases included in the above schedules totaled $115.5 million and $130.9 million, respectively. During fiscal year 2015, five student housing buildings were demolished with an original cost of $7.3 million and accumulated depreciation of $7.0 million, for a total net book value written off of $331,000. During fiscal year 2014, five student housing buildings were demolished with an original cost of $7.6 million and accumulated depreciation of $6.8 million, for a total net book value written off of $779,000. As of June 30, 2014, seven student housing buildings were scheduled for demolition in subsequent fiscal years and were recorded as impaired assets. A portion of the net book value of each building was written off with the remainder to be written off in the subsequent year. The total original cost of impaired assets was $7.3 million with accumulated depreciation of $6.5 million, and a total net book value written off in fiscal year 2014 of $356,000.
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Non-cash capital asset and related financing activities as of June 30, 2015 and 2014 are summarized below (in thousands):
2015 2014
Capital lease additions 26,063$ 1,353$ Gifts of capital assets 2,750$ 4,934$ Capital asset additions in accounts payable 39,976$ 11,982$ Capital asset additions by service concession arrangements 150,107$ -$ Capitalized interest, net of investment income 8,037$ 454$ Amortized bond discount and premium 7,719$ 2,667$ Amortized difference between reacquisition price and net carrying amount of refunded debt 828$ -$ Capital asset trade in 1,594$ 295$
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of June 30, 2015 and 2014 are as follows (in thousands):
2015 2014
Payable to vendors and contractors 165,744$ 113,574$ Accrued expenses, including vacation and sick leave 78,311 68,705 Employee withholdings and deposits payable to third parties 49,168 45,297
Total 293,223$ 227,576$
6. UNEARNED REVENUE
Unearned revenues as of June 30, 2015 and 2014 are as follows (in thousands):
June 30, June 30, Current Non-current2014 Additions Reductions 2015 Portion Portion
Unearned summer school revenue 8,934$ 9,259$ 9,091$ 9,102$ 9,102$ -$ Unearned hospital revenue 7,545 94,403 73,241 28,707 28,707 - Unearned grants and contracts revenue 23,140 59,967 57,140 25,967 25,967 - Unearned multimedia rights revenue - 210,000 2,916 207,084 14,001 193,083 Prepaid athletic ticket sales 12,636 14,557 13,662 13,531 13,531 - Other 7,762 10,151 11,349 6,564 6,553 11
Total 60,017$ 398,337$ 167,399$ 290,955$ 97,861$ 193,094$
2015
June 30, June 30, Current Non-current2013 Additions Reductions 2014 Portion Portion
Unearned summer school revenue 7,330$ 8,934$ 7,330$ 8,934$ 8,934$ -$ Unearned hospital revenue 6,928 33,170 32,553 7,545 7,545 - Unearned grants and contracts revenue 29,509 57,686 64,055 23,140 23,140 - Prepaid athletic ticket sales 13,581 14,354 15,299 12,636 12,636 - Other 7,204 23,661 23,103 7,762 7,762 -
Total 64,552$ 137,805$ 142,340$ 60,017$ 60,017$ -$
2014
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A multimedia rights partnership was formed in July 2014 between the University and JMI Sports providing athletics and campus multimedia marketing rights in a 15 year, $210.0 million agreement. Under the contract, the University will receive a guaranteed rights fee in each of the 15 years of the partnership, starting at $9.1 million in fiscal year 2015-16 and increasing to $16.0 million in fiscal year 2029-30. The agreement also included a $29.4 million signing bonus to be paid over the first two years of the contract.
7. LONG-TERM LIABILITIES
Long-term liabilities as of June 30, 2015 and long-term liability activity for the year ended June 30, 2015 are summarized below (in thousands):
June 30, June 30, Current Non-current
2014 Additions Reductions 2015 Portion Portion
Bonds, notes and capital leases
General receipts notes 265,180$ -$ 195,985$ 69,195$ 16,440$ 52,755$
General receipts bonds 432,500 347,185 27,950 751,735 14,845 736,890
Educational buildings bonds 33,350 - 33,350 - - -
Capital leases and other
long-term obligations 86,485 26,693 23,194 89,984 17,298 72,686
Notes payable 20,664 - 1,135 19,529 600 18,929
Total bonds, notes and capital leases 838,179 373,878 281,614 930,443 49,183 881,260
Other liabilities
Annuities payable 5,701 653 2,552 3,802 565 3,237
Arbitrage rebate 27 - 27 - - -
Automobile and property self insurance 440 1,491 1,469 462 462 -
Compensated absences 7,634 - 334 7,300 721 6,579
Federal loan programs 20,533 375 531 20,377 - 20,377
Health insurance 7,189 40,620 39,229 8,580 8,580 -
Insurance executory costs - 6,157 82 6,075 82 5,993
Long-term disability - 2 - 2 2 -
Medical malpractice 29,297 8,959 7,659 30,597 6,006 24,591
Retiree health benefits trust 97,317 11,498 - 108,815 - 108,815
Unamortized bond premium 22,160 46,250 7,781 60,629 6,437 54,192
Unemployment compensation 622 705 752 575 575 -
Workers compensation 21,773 9,967 6,660 25,080 7,167 17,913
Other 8,402 7,812 6,547 9,667 1,623 8,044
Total other liabilities 221,095 134,489 73,623 281,961 32,220 249,741
Total 1,059,274$ 508,367$ 355,237$ 1,212,404$ 81,403$ 1,131,001$
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Long-term liabilities as of June 30, 2014 and long-term liability activity for the year ended June 30, 2014 are summarized below (in thousands):
June 30, June 30, Current Non-current
2013 Additions Reductions 2014 Portion Portion
Bonds, notes and capital leases
General receipts notes 280,175$ -$ 14,995$ 265,180$ 15,685$ 249,495$
General receipts bonds 199,295 238,975 5,770 432,500 5,940 426,560
Educational buildings bonds 37,960 - 4,610 33,350 4,795 28,555
Capital leases and other
long-term obligations 108,641 2,840 24,996 86,485 19,964 66,521
Notes payable 21,719 - 1,055 20,664 1,089 19,575
Total bonds, notes and capital leases 647,790 241,815 51,426 838,179 47,473 790,706
Other liabilities
Annuities payable 4,788 1,473 560 5,701 566 5,135
Arbitrage rebate 5 22 - 27 - 27
Automobile and property self insurance 414 1,119 1,093 440 440 -
Compensated absences 7,634 - - 7,634 651 6,983
Federal loan programs 20,992 375 834 20,533 - 20,533
Health insurance 6,038 36,447 35,296 7,189 7,189 -
Long-term disability 6 - 6 - - -
Medical malpractice 26,346 8,440 5,489 29,297 5,235 24,062
Retiree health benefits trust 75,362 21,955 - 97,317 - 97,317
Unamortized bond premium 11,144 12,715 1,699 22,160 2,137 20,023
Unemployment compensation 629 744 751 622 622 -
Workers compensation 19,765 7,743 5,735 21,773 5,445 16,328
Other 5,644 6,460 3,702 8,402 1,320 7,082
Total other liabilities 178,767 97,493 55,165 221,095 23,605 197,490
Total 826,557$ 339,308$ 106,591$ 1,059,274$ 71,078$ 988,196$
Annuities payable consists of the present value of future payments due under charitable remainder annuity trusts, charitable remainder unitrusts, lead trusts, irrevocable trusts and charitable gift annuities, discounted at 3.6% to 10.8%. Bond discounts and premiums are amortized over the life of the bond using the effective interest method. Bonds payable consist of general receipts bonds and general receipts notes in the original amount of $1.10 billion dated October 27, 2005 through April 15, 2015, which bear interest at 1.46% to 4.66%. The bonds are payable in annual installments through April 1, 2045. The University is required to make semi-annual deposits of varying amounts to the debt service funds held by the trustees. The bonds are secured by the net revenues of the University and the assets restricted under the bond indenture agreements. Capital leases are due in periodic installments through November 20, 2028 and bear interest at 1.39% to 4.45%. All bonds except for the General Receipts 2012 Bonds Series A and General Receipts 2014 Bonds Series C, totaling $791.0 million, are callable between 2016 and 2025. The indenture agreements require that certain funds be established with the trustee and with the Commonwealth. On July 28, 2014, approximately $88.1 million of University of Kentucky General Receipts 2014 Bonds Series D were issued at a true interest cost of 2.04%. These bonds were issued for the purpose of refunding University of Kentucky General Receipts 2005 Bonds Series A (originally issued to fund the renovation of Memorial Coliseum), University of Kentucky General Receipts 2005 Notes Series A (originally issued to fund the construction of the Patient Care Facility) and Consolidated Educational Buildings Revenue Bonds (CEBRB) Series PQR (originally issued to fund various projects). These bonds will reduce the University’s total debt service payments over the next 11 years by approximately $16.8 million , representing an economic gain (difference between the present value of the debt service payments on the old and the new bonds) of
41
approximately $15.0 million. Also, on April 15, 2015, approximately $259.0 million of University of Kentucky General Receipts 2015 Bonds Series A, B and C were issued at a true interest cost of 3.52%, 2.33% and 1.97%, respectively. These bonds were issued for the purpose of funding various construction projects for the System and refunding University of Kentucky General Receipts 2007 Notes Series A and B (originally issued to fund the construction of the Patient Care Facility), CEBRB Series U (originally issued to fund parking and infrastructure projects) and University of Kentucky General Receipts 2006 Bonds Series A (originally issued to fund the construction of the student health facility). The refunding portion of these bonds will reduce the University’s total debt service payments over the next 13 years by approximately $17.3 million, representing an economic gain of approximately $14.9 million. In prior fiscal years, certain general receipts bonds series were issued as Build America Bonds (BAB) as authorized under the American Recovery and Reinvestment Act of 2009 and as Qualified Energy Conservation Bonds (QECB) as authorized under the Recovery Act and the Hiring Incentive to Restore Employment Act of 2010. The University will receive an annual cash subsidy from the U.S. Treasury equal to 35% (BAB) and 80% (QECB) of the interest payable on the bonds. The subsidy, which was approximately $2.3 million during fiscal year 2015 and 2014, was included in gifts and non-exchange grants in the Statements of Revenues, Expenses and Changes in Net Position. The subsidy payment is contingent on federal regulations and may be subject to change. On March 1, 2013, the President signed an executive order reducing the budgetary authority in accounts subject to sequestration. As a result, the BAB subsidy was reduced to approximately 32% and 33% in 2015 and 2014, respectively. The QECB subsidy was reduced to approximately 74% in 2015 and 2014. Principal maturities and interest on bonds, notes and capital leases for the next five fiscal years and in subsequent five-year fiscal periods as of June 30, 2015, are as follows (in thousands):
Principal Interest Total
2016 49,183$ 38,774$ 87,957$ 2017 66,548 37,355 103,903 2018 48,356 35,003 83,359 2019 44,010 33,190 77,200 2020 45,347 31,451 76,798 2021-2025 236,674 130,494 367,168 2026-2030 151,635 77,841 229,476 2031-2035 105,030 52,729 157,759 2036-2040 103,900 29,904 133,804 2041-2045 79,760 9,044 88,804
Total 930,443$ 475,785$ 1,406,228$
At June 30, 2015, assets with a fair market value of approximately $213.7 million have been placed on deposit with trustees to totally defease bonds with a par amount of approximately $199.9 million. The liability for these fully defeased bonds is not included in the financial statements.
8. DEFERRED INFLOWS OF RESOURCES As of June 30, 2015 and 2014, deferred inflows of resources are as follows (in thousands):
2015 2014
Aramark service concession arrangement 105,900$ -$ Barnes and Noble service concession arrangement 4,924 - EdR service concession arrangement 130,300 -
Total 241,124$ -$
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The University has entered into a multi-phase housing project with a third party developer, Education Realty Trust (EdR), to construct new residence halls. Phase I, signed in April 2012, was for two four-story buildings, (601 beds) and opened in August 2013. The project, with an estimated cost of $25.2 million, is on land owned by the University and leased to EdR for a 50 year term with options for additional 10 year and 15 year terms thereafter. At the conclusion of the initial 50 year term or the first renewal option, the University will be required to purchase the buildings from EdR for an appraised value, unless the ground lease is renewed for the first or second optional extension. At the conclusion of the second optional extension, the University is required to purchase the buildings for the greater of current net book value or $10. Ground rent is a percentage of gross revenues. The University accounts for the ground lease as an operating lease. These facilities are subject to ad valorem tax. Phase II-A, which opened in August 2014, included the development of five residence halls at an approximate cost of $138.2 million. The residence halls are reported as a capital asset with carrying value of $136.4 million at June 30, 2015 and deferred inflows of resources in the amount of $130.3 million pursuant to the service concession arrangement. The 75 year term lease with EdR includes maintenance standards for the facilities and parameters for the room rental rates for the contract duration. The University will receive a percentage of the total revenues and a share of the net income, after EdR achieves a minimum internal rate of return. Phase II-A and subsequent phases are exempt from ad valorem tax. Future plans include Phase II-B, online in August 2015, for the construction of three residence halls at an approximate cost of $101.2 million. Phase II-C, expected to open in August 2016, includes residence halls at an approximate cost of $83.9 million. Phase III-A, expected to open in August 2017, will be a $74.0 million, 771 bed facility which will provide apartment style units for upper class, graduate and professional students. In July 2014, the University entered into an approximately $250.0 million contract with Aramark Enterprise Services, LLC (Aramark), forming a 15 year public/private partnership. This partnership will transform dining services offered to students, faculty, staff, and the community served. Under the partnership, several new food brands were located on campus starting in the Fall of 2014 and continuing the next year. Aramark provides meals covered under the University’s student boarding plans and declining balance dollars. The contract allows for dining commissions to be paid to the University with guaranteed minimum amounts for each contract year. Aramark will provide $70.0 million in facilities investments, including $40.0 million in new facilities, subject to board approval, to be completed by fiscal year 2017-18. As part of these facilities investments, Aramark constructed a new K Lair Grill at Haggin Hall and made substantial upgrades to the Student Center Food Court and will construct “The 90’s” dining facility for the Fall 2015 semester. The completed projects are reported as capital asset with carrying value of $11.3 million at June 30, 2015 and deferred inflows of resources in the amount of $11.1 million pursuant to the service concession arrangement. The present value of the guaranteed minimum payments over the 15 year contract period include a receivable of $94.6 million and deferred inflows of resources in the amount of $94.8 million pursuant to the service concession arrangement.
In June 2015, the University entered into a contract with Barnes and Noble College Booksellers (Barnes and
Noble) to operate and provide services for the bookstore for ten years with an additional five year renewal option period. Barnes and Noble constructed a temporary bookstore for use until the new student center opens in January 2018. The present value of the guaranteed minimum payments over the 181 month contract period is reported as receivable of $4.3 million and deferred inflows of resources in the amount of $4.9 million pursuant to the service concession arrangement.
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9. COMPONENTS OF RESTRICTED EXPENDABLE NET POSITION
Restricted expendable net position are subject to externally imposed stipulations or conditions that must be followed and cannot be used for support of general operations of the University. As of June 30, 2015 and 2014 restricted expendable net position is composed of the following (in thousands):
2015 2014
Appreciation on permanent endowments 158,121$ 164,726$ Term endowments 9,123 9,515 Quasi-endowments initially funded with restricted assets 50,775 50,997 Funds restricted for capital projects and debt service 129,458 102,131 Funds restricted for noncapital purposes 93,605 87,961 Loan funds (primarily University funds required for federal match) 10,908 10,445
Total 451,990$ 425,775$
10. DESIGNATIONS OF UNRESTRICTED NET POSITION
Unrestricted net position is designated for specific purposes by action of the Board or management or may otherwise be limited by contractual agreements. Commitments for the use of unrestricted net position as of June 30, 2015 and 2014 are as follows (in thousands):
2015 2014
Working capital requirements 109,072$ 115,282$ Budget appropriations for future year fiscal operations 180,535 145,083 Designated for capital projects 36,831 55,201 Designated for renewal and replacement of capital assets 31,021 25,559 UK HealthCare Hospital System 585,764 414,062 Affiliated corporations and component units 54,411 38,847
Total 997,634$ 794,034$
11. PLEDGED REVENUES
Pledged revenues for 2015 and 2014 as defined by the General Receipts Trust Indenture, are as follows (in thousands):
2015 2014
Student tuition and fees 302,936$ 287,517$ Nongovernmental grants and contracts 849 716 Recoveries of facilities and administrative costs 48,154 47,159 Sales and services 40,004 41,637 Hospital services 1,323,652 1,101,662 Auxiliary enterprises - housing and dining 39,551 44,154 Auxiliary enterprises - athletics 88,928 73,957 Auxiliary enterprises - other 46,753 37,282 Other operating revenue 852 967 State appropriations 279,611 283,869 Gifts and grants 4,955 4,809 Investment income 21,774 6,208
Total 2,198,019$ 1,929,937$
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The University has substantially pledged all of the unrestricted operating and nonoperating revenues to repay the general receipts bonds and notes issued during 2005 to 2015. Proceeds from the bonds and notes provided funding for new constructions, major renovations, and for the refunding of bonds and notes issued over the years. The bonds are payable from unrestricted revenues, operating and nonoperating, and are payable through 2045. Annual principal and interest payments on bonds are expected to require approximately three percent of pledged revenue. The total principal and interest remaining to be paid on the bonds is approximately $1.28 billion and $1.07 billion in 2015 and 2014, respectively. Principal and interest paid for 2015 and 2014 was $55.5 million and $43.2 million, respectively.
12. INVESTMENT INCOME Components of investment income (loss) for the years ended June 30, 2015 and 2014 are as follows (in thousands):
2015 2014Interest and dividends earned on endowment investments 12,154$ 14,369$ Realized and unrealized gains and losses on endowment investments 9,877 135,759 Interest and dividends on cash and non-endowment investments 3,242 3,964 Realized and unrealized gains and losses on non-endowment investments 18,293 (317)
Investment income from external trusts 1,622 1,772
Total 45,188$ 155,547$
13. FUNDS HELD IN TRUST BY OTHERS
The University is the income beneficiary of various trusts that are held and controlled by external trustees. For the years ended June 30, 2015 and 2014, the University received income from these trusts of approximately $1.6 million and $1.8 million, respectively. The market value of the external trust assets as of June 30, 2015 and 2014 was approximately $41.5 million and $42.1 million, respectively. As the University does not have ownership of the trust assets held by external trustees, the trusts are recorded at a nominal value of $1 each.
14. PLEDGES AND DEFERRED GIFTS At June 30, 2015 and 2014, respectively, pledges are expected to be collected primarily over the next 10 years, as follows (in thousands):
2015 2014
Operating purposes 10,939$ 11,541$ Capital projects 74,974 70,046
Total pledges 85,913 81,587 Less discounts (7,376) (5,308)
Total gross pledges receivable 78,537 76,279 Less allowances (26,650) (28,316)
Total net pledges receivable 51,887$ 47,963$
In accordance with GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the University is required to record operating and capital pledges as revenue when all eligibility requirements have been met. Endowment pledges are not recognized as revenue until the gifts are actually received. For the years ended June 30, 2015 and 2014, the University recorded the discounted value of operating and capital pledges using a rate of two percent.
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Deferred gifts through insurance, known bequests and irrevocable trusts in which the University has a remainder interest are estimated to be approximately $115.7 million and $94.5 million at June 30, 2015 and 2014, respectively. The University records these amounts as revenue when the cash is received.
15. GRANTS AND CONTRACTS AWARDED
At June 30, 2015 and 2014, grants and contracts of approximately $189.2 million and $177.7 million, respectively, have been awarded to the University and the University of Kentucky Research Foundation, but not expended. These amounts will be recognized in future periods.
16. RETIREMENT PLANS Regular full-time employees, including faculty, are participants in the University of Kentucky Retirement Plan, a defined contribution plan. The University of Kentucky Retirement Plan consists of five groups as follows:
Group I Established July 1, 1964, for faculty and certain administrative officials.
Group II Established July 1, 1971, for staff members in the clerical, technical and service categories.
Group III Established July 1, 1972, for staff members in the managerial, professional and scientific categories.
Group IV Established January 1, 1973, for staff members having U.S. Civil Service retirement entitlement.
Group V Established July 1, 1987, for staff members covered under the Federal Employees Retirement System that replaced Civil Service (those whose employment began during the period from January 1, 1984 to March 31, 1987). Staff members whose employment began after March 31, 1987 are under one of the above University of Kentucky Retirement Plans.
Participation in the University of Kentucky Retirement Plan is mandatory for all regular full-time employees in groups I, II and III who are age 30 or older. Participation is voluntary for regular full-time employees under the age of 30 and for those employees in groups IV and V. Participants in groups I, II, III and IV contribute five percent and the University contributes 10% of the participant’s eligible compensation to the retirement plan. Participants in group V contribute one percent and the University contributes two percent of the participant’s eligible compensation to the retirement plan.
The University has authorized two retirement plan carriers, as follows:
Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) Fidelity Investments Institutional Services Company
Under the fully funded University of Kentucky Retirement Plan, the University and plan participants make contributions to provide retirement benefits to employees in individually owned contracts. All payments are vested immediately for employees hired prior to January 1, 2010. For employees hired after January 1, 2010, employer contributions are vested after three years. The University's contributions and costs for 2015 and 2014 were approximately $97.7 million and $91.4 million, respectively. Employees contributed approximately $48.6 million in 2015 and $45.3 million in 2014. The University's total payroll costs were approximately $1.26 billion and $1.18 billion for the years ended June 30, 2015 and 2014, respectively. The payroll for employees covered by the retirement plan was approximately $975.0 million and $912.1 million for the years ended 2015 and 2014, respectively. Regular full-time KMSF employees become eligible to participate in a defined contribution plan on the first of the month following the employee’s regular full time hire date and attainment of age 21. KMSF contributes 10% of the employee’s earnings and employees do not contribute to this plan. KMSF contributions for 2015 and 2014 were approximately $695,000 and $700,000, respectively. The total payroll costs for employees
46
covered by the defined contribution plan were approximately $7.1 million and $7.2 million for the years ended June 30, 2015 and 2014, respectively. Participants become vested in the plan according to years of service, with 100% vesting at three years or more. In addition to retirement benefits provided from the group retirement plan, the University provides supplemental retirement income benefits to certain eligible employees in each of the retirement groups (see Note 17).
17. MINIMUM ANNUAL RETIREMENT BENEFITS AND SUPPLEMENTAL RETIREMENT INCOME
Employees in retirement groups I, II and III, (see note 16), who were age 40 or older prior to the date of establishment of each group plan, and who were employed by the University prior to that date, qualify for the minimum annual retirement benefit provisions of the retirement plan. Benefits for these eligible employees are based upon a percentage, determined through years of service, of the participant's annual salary in the last year of employment prior to retirement. Retirement benefits as determined are funded by each individual retiree's accumulation in the group retirement plan, with the balance, if necessary, provided by the University as supplemental retirement income. No active employees were eligible for this benefit for the years ended June 30, 2015 and 2014. The Legislature of the Commonwealth appropriates funds to the University which the University has used for payment of supplemental retirement income benefits since adoption of the group retirement plans, and is expected to continue this practice. However, the Constitution of the Commonwealth prohibits the commitment of future revenues beyond the end of the current biennium. The University does not recognize the liability for supplemental retirement income benefits during the service life of covered employees, but recognizes its costs when funds are appropriated by the Legislature and payments are made. The University intends to continue paying supplemental retirement income benefits. Supplemental retirement benefit payments were approximately $1.4 million and $1.6 million for the years ended June 30, 2015 and 2014, respectively. The latest actuarial valuation was prepared as of July 1, 2014 by TIAA/CREF. The actuarial present value of accumulated supplemental retirement income benefits as determined by this valuation, utilizing an assumed rate of return of seven percent, was approximately $5.9 million.
18. HEALTH INSURANCE BENEFITS FOR RETIREES The University administers a single-employer defined benefit healthcare plan including medical and
prescription drug benefits. The plan provides lifetime healthcare insurance benefits for eligible retirees and their surviving spouses. Employees are eligible for the University retiree health benefits upon retirement after (a) completing 15 years of continuous service and (b) age plus years of service equal at least 75 years (“rule of 75”). Employees hired on or after January 1, 2006 are eligible to participate in the retiree healthcare plan on an “access only” basis upon retirement, but they must pay 100% of the cost of the selected plan. Employees hired prior to January 1, 2006 are eligible for the University subsidy based on their hire date and surviving spouses receive one-half of the health credit their spouse was entitled to if they were covered by the health plan at the time of the retiree’s death. No health credit is provided to a spouse of a living retiree. Human Resources policies and procedures define retiree health benefits and can be amended by the President of the University as delegated by the Board. Employees who were hired before August 1, 1965 are also eligible for $5,000 of life insurance coverage upon retirement.
The retiree health plan does not issue a publicly available financial report, but it is included in this report of the
University using the economic resources measurement focus and the accrual basis of accounting under which expenses, including benefits and refunds, are recorded when the liability is incurred. Employer contributions are recorded in the accounting period in which they are earned and become measureable. Investments are reported at fair market value and based on published prices and quotations from major investment brokers at current exchange rates, as available.
The contribution requirements of plan members and the University are established and may be amended by
the President of the University. For employees hired before January 1, 2006, the University provides a pre-65 credit of up to 90% of the “true retiree” cost of the least expensive pre-65 medical plan. For post-65 benefits, the University provides a credit equal to 90% of the “true retiree” cost of the post-65 medical plan. For fiscal
47
year 2015, the University contributed $20.8 million to the plan. Plan members receiving benefits contributed 30.8% of the premium costs, an average for combined single and family coverage. In fiscal year 2015, total member contributions were approximately $4.9 million.
The University has established a trust fund to segregate plan assets, and currently plans to contribute amounts to the trust fund sufficient to fully fund the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The University plans to continue to finance retiree benefits by pre-funding benefits and contributing the ARC into a segregated, protected trust fund and will amortize the initial unfunded accrued liability (UAL) over a 30 year closed period. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The current ARC of $20.4 million is 4.0% of annual covered payroll. There are no long-term contracts for contributions to the plan. The following table presents the other postemployment benefits (OPEB) cost for the year, the amount contributed and changes in the OPEB Plan for fiscal year 2015 (in thousands):
Annual required contribution 20,395$ Contributions made (20,543)
Increase in net OPEB obligation/(asset) (148)
Net OPEB obligation/(asset) - beginning of year (239)
Net OPEB obligation/(asset) - end of year (387)$
The University’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal year 2015, 2014 and 2013, are as follows (in thousands):
Fiscal Year Ended
Annual OPEB cost
Percentage of Annual OPEB
Cost Contributed Net OPEB
Obligation/(Asset)
6/30/2013 $20,392 100.4% ($240)6/30/2014 $19,801 100.0% ($239)6/30/2015 $20,395 100.7% ($387)
As of July 1, 2015, the actuarial accrued liability (AAL) for benefits was $337.7 million, with an actuarial value
of assets of $108.8 million, resulting in an unfunded actuarial accrued liability (UAAL) of $228.9 million. The July 1, 2015 valuation reflects updates in the following assumptions to better anticipate future experience under the plan: healthcare trend rates, mortality rates, retirement rates, termination rates and participation rates. The covered payroll (annual payroll of active employees covered by the plan) was $509.6 million and the ratio of the UAAL to the covered payroll was 44.9% at June 30, 2015. The University implemented the University of Kentucky OPEB Trust in July 2007, after the July 1, 2007 actuarial valuation date. As of June 30, 2015, net trust fund assets totaled $108.8 million.
Actuarial valuation of an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of events far into the future. Examples include assumptions about future employment, mortality and the healthcare cost trend. Actuarially determined amounts are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, is designed to present multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
The projection of benefits for financial reporting purposes is based on the substantive plan (the plan as
understood by the employer and the plan members) and includes the type of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects for legal or contractual funding limitations on the pattern of cost sharing between the employer
48
and plan member in the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2013 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial
assumptions included a 7.5% discount rate based on the University’s ARC funding policy based on the expected long-term return on the separate trust assets that will be used to finance the payment of plan benefits. The projected annual healthcare trend rate is eight percent for the pre-65 members and 6.5% for the post-65 members initially, reduced in decrements to an ultimate rate of 2.5% for pre-65 members and five percent for post-65 members after eight years and seven years respectively. The expected long-term payroll growth rate was assumed to be three percent per year. The initial UAAL is being amortized as a level percent of pay amount on a closed basis. The remaining amortization period at July 1, 2014 was 23 years.
19. LONG-TERM DISABILITY BENEFIT PLAN
The University is self-funded for a long-term disability income program and has established a trust for the
purpose of paying claims and establishing necessary reserves. Regular employees with a full-time equivalent of .75 or greater who have completed 12 months of service are automatically enrolled in the plan. To be covered, an employee must be actively at work on the first day of the month after the employee completes one full year of service. An employee approved for long-term disability receives benefits based on the employee’s basic regular monthly salary at the time of the onset of the disabling condition. Primary income benefits provide payment of 60% of the basic regular monthly salary less any disability received from government programs and/or another employer for the same condition. Basic salary for medical faculty is defined as the tenure base salary. Other sources of income used in the benefit formula include Social Security, worker’s compensation or other similar government programs, veterans’ or other governmental disability payments, or other employer-sponsored disability benefits.
Employees approved for long-term disability receive 100% of their basic salary for the first six months and 60% thereafter. Benefits end when members recover, die, terminate employment or retire. In most cases, claimants retire at age 65. The plan also includes provisions for health insurance that allow participants who were enrolled in a health plan at the time their disability benefit began to continue health coverage (University subsidy limited to 29 months for claimants approved on or after October 1, 2006), life insurance benefit ($10,000 before July 1, 2007 or one times salary on or after July 1, 2007) and retirement contributions equal to 10% of pre-disability salary per year for applications filed on or after October 1, 2006 and 15% of pre-disability salary per year for applications filed before October 1, 2006.
The long-term disability plan does not issue a publicly available financial report, but is included in this report of the University using the economic resources measurement focus and the accrual basis of accounting under which expenses, including benefits and refunds, are recorded when the liability is incurred. Employer contributions are recorded in the accounting period in which they are earned and become measureable. Investments are reported at fair market value and based on published prices and quotations from major investment brokers at current exchange rates, as available. The coverage of the long-term disability benefits is established and may be amended by the President of the University.
The University currently plans to contribute amounts to the trust fund sufficient to fully fund the ARC, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The University plans to continue to finance long-term disabilities by pre-funding benefits and contributing to the ARC into a segregated, protected trust fund and will amortize the initial UAL over a 30 year closed period. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The current ARC of $2.2 million is 0.3% of annual covered payroll. There are no long-term contracts for contributions to the plan.
49
The following table presents the OPEB cost for the year, the amount contributed and changes in the OPEB plan for fiscal year 2015 (in thousands):
Annual required contribution 2,203$ Contributions made (2,197)
Increase in net OPEB obligation/(asset) 6 Net OPEB obligation/(asset) - beginning of year (4) Net OPEB obligation/(asset) - end of year 2$
The University’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal year 2015, 2014 and 2013 are as follows (in thousands):
Fiscal Year Ended
Annual OPEB cost
Percentage of Annual OPEB
Cost Contributed Net OPEB
Obligation/(Asset)
6/30/2013 $2,012 99.8% $6
6/30/2014 $2,139 100.5% ($4)
6/30/2015 $2,203 99.7% $2 As of July 1, 2015, the actuarial accrued liability (AAL) for benefits was $22.7 million and the actuarial value of
assets was $16.6 million, resulting in an UAAL of $6.1 million. The July 1, 2015 valuation reflects updates in the following assumptions to better anticipate future experience under the plan: disability recovery rates, mortality rates, termination rates and retirement rates. The covered payroll (annual payroll of active employees covered by the plan) was $813.2 million and the ratio of the UAAL to the covered payroll was 0.8% at June 30, 2015.
Actuarial valuation of an ongoing plan involves estimates of the value of reported amounts and assumptions
about the probability of events far into the future. Major factors affecting all long-term disability benefits are the rate at which people become disabled and how quickly they are expected to recover from disability. These rates will improve or deteriorate over time, for example with the state of the economy, with technological development and health related events. Other factors that could also impact the liability include salary inflation, changes in utilization patterns, changes to government programs and technological advances, such as new drugs or equipment. Actuarially determined amounts are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, is designed to present multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
The projection of benefits for financial reporting purposes is based on the substantive plan (the plan as understood by the employer and the plan members) and includes the type of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2013 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 7.5% discount rate based on the University’s funding policy (ARC funding) based on the expected long-term return on the separate trust assets that will be used to finance the payment of plan benefits. The projected elimination period is six months; termination (mortality and recovery from disability) and gender and age-related disability incidence rates are based on the 1987 Commissioner’s Group Long-Term Disability Table. Benefits end when members recover, die, terminate employment or retire. For long-term disabilities arising at age 64 or later, the duration of the long-term disability payments is limited to 12 months. Payments are assumed to be made until the later of (a) age 65 or (b) five years after date of disability. An employee approved for long-term disability benefits receives primary and supplemental payment benefits based on the employee's basic regular monthly salary at the time of onset of the disabling condition. Primary income benefits provide payment of 60% of the basic regular monthly salary less any disability received from government programs and/or other employers for the same condition. Basic salary for medical faculty is
50
defined as the tenure base salary. Other sources of income used in the benefit formula include Social Security, workers' compensation or other similar government programs, veterans' or other governmental disability payments, or other employer-sponsored disability benefits. The University provides supplemental payment benefits for 42 months following the date of disability onset based on the following schedule (for current long-term disability participants or employees approved for long-term disability benefits prior to October 1, 2006):
Months Percentage of Salary
1-6 100%
7-18 90%
19-30 80%
31-42 70%
43-End of Benefit 60% Claimants that file applications and who are approved for benefits on October 1, 2006 or after will have benefits based on the following schedule:
Months Percentage of Salary
1-6 100%
7-End of Benefit 60%
The projected long-term income benefit is based on actual net benefit currently being paid with social security offset. For people who have been disabled for less than 24 months and are currently not entitled to a social security offset, it was assumed that the offset will eventually be approved according to the following table:
Months Since Disability Proportion
<12 5%
12-17 40%
18-23 40%
24+ 80%
The future salary increase for active members was assumed to be three percent per year. The UAAL is being amortized as a level percent of pay amount on a closed basis. The remaining amortization period at July 1, 2014 was 23 years.
20. RISK MANAGEMENT The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by (1) the State Fire and Tornado Insurance Fund (the insurance fund), (2) Sovereign Immunity and the State Board of Claims, or (3) in the case of risks not covered by the insurance fund and Sovereign Immunity, commercial insurance, participation in insurance risk retention groups or self-insurance. The insurance fund covers losses to property from fire, wind, earthquake, flood and most other causes of loss between $250,000 and $1.0 million per occurrence. Losses in excess of $1.0 million are insured by commercial carriers up to $1.25 billion per occurrence with buildings and contents insured at replacement cost. As a state agency, the University is vested with Sovereign Immunity and is subject to the provisions of the Board of Claims Act, under which the University's liability for certain negligence claims is limited to $200,000 for any one person or $350,000 for all persons damaged by a single act of negligence. Claims against educators' errors and omissions and wrongful acts are insured through a reciprocal risk retention group. There have been no significant reductions in insurance coverage from 2014 to 2015. Settlements have not exceeded insurance coverage during the past three years.
51
The University and its agents are insured against medical malpractice by a combination of Sovereign Immunity, self-insurance, commercial liability insurance and an excess coverage fund established by the Commonwealth. An actuarial valuation is performed to determine the self-insurance funding requirements and the fund liability, which has been discounted using an interest rate of 3.5%. The malpractice liability as of June 30, 2015 is based on the requirements of GASB Statement No. 10, which requires that a liability for claims be recorded if it is probable that a loss has occurred and the amount of loss can be reasonably estimated. The liability includes an estimate for claims that have been incurred but not reported as of June 30, 2015. The University also self-insures certain employee benefits, including health insurance, worker's compensation and unemployment claims to the extent not covered by insurance. The University has recorded an estimate for asserted claims at June 30, 2015.
21. CONTINGENCIES The University is a defendant in various lawsuits. The nature of the educational and health care industries is such that, from time to time, claims will be presented on account of alleged negligence, acts of discrimination, medical malpractice, breach of contract or disagreements arising from the interpretation of laws or regulations. While some of these claims may be for substantial amounts, they are not unusual in the ordinary course of providing educational and health care services at a large institution. However, University officials are of the opinion, based on advice of in-house legal counsel, that the effect of the ultimate outcome of all litigation will not be material to the future operations or financial position of the University.
22. RESEARCH CHALLENGE TRUST FUND The Research Challenge Trust Fund (RCTF) was created by the Kentucky General Assembly with the passage of the Postsecondary Education Improvement Act of 1997 (House Bill 1). The objectives of the RCTF, as stated in House Bill 1, include support of efforts by the University to attain status as a top-20 public research university. The RCTF Endowment Match Program provides state funds on a dollar-for-dollar match basis. This program, also known as “Bucks for Brains,” supports endowed chairs, professorships and graduate fellowships, and the research and graduate mission of the University. With the passage of the 2008-10 budget of the Commonwealth, the 2008 General Assembly authorized $50.0 million in General Fund supported bonds in 2008-09 for the RCTF to support the Endowment Match Program and a newly created Research Capital Match Program. In accordance with KRS 164.7917, these funds were allocated two-thirds to the University of Kentucky ($33.3 million) and one-third to the University of Louisville ($16.7 million). At its June 9, 2009 board meeting, the Board approved the allocation of the University’s RCTF appropriation as follows: $21.9 million to the Research Capital Match Program and $11.4 million to the Endowment Match Program. The status of the RCTF endowed funds as of June 30, 2015, is summarized below (in thousands):
Kentucky University ofGeneral Assembly Kentucky State Funds
Funding Share of Funding Received to Date
1998 Biennium 100,000$ 66,667$ 66,667$ 2000 Biennium 100,000 68,857 68,857 2002 Biennium 100,000 66,667 66,667 2008 Biennium: Capital Projects 21,927 21,927 21,927 2008 Biennium: RCTF 28,073 11,406 11,406
Total 350,000$ 235,524$ 235,524$
Interest income of approximately $2.2 million was earned on the state matching funds and included in the University’s share of the 2000 biennium funding.
52
23. CANCER RESEARCH MATCHING FUND The Kentucky General Assembly created the Cancer Research Institutions Matching Fund, which is funded by a one-cent surtax levied on each 20 cigarettes sold in Kentucky. Tax revenues are made available equally to the University of Kentucky and the University of Louisville when matched dollar-for-dollar by private sources. A summary of the receipts and expenses related to the fund as of June 30, 2015 and 2014 are as follows (in thousands):
2015 2014
Funds from private sources approved for match 7,749$ 5,715$ Cigarette excise tax funds distributed 1,953 1,901
Total cancer research matching fund revenues 9,702$ 7,616$
Cancer research matching fund expenses 7,763$ 7,028$
24. NATURAL CLASSIFICATION
The University’s operating expenses by natural classification for the years ended June 30, 2015 and 2014 are as follows (in thousands):
2015 2014Salaries and wages 1,265,729$ 1,179,988$ Employee benefits 390,057 358,804 Supplies and services 621,350 582,175 Depreciation 134,374 131,262 Student scholarships and financial aid 54,676 60,401 Purchased utilities 50,970 53,093 Other, various 92,097 75,860
Total 2,609,253$ 2,441,583$
25. COMBINED CONDENSED STATEMENTS
The University of Kentucky and its blended component units’ condensed statements for the years ended June 30, 2015 and 2014 were summarized as follows (in thousands):
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F N
ET
PO
SIT
ION
AS
OF
JU
NE
30,
201
5(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alA
SS
ET
S A
ND
DE
FE
RR
ED
OU
TF
LO
WS
OF
RE
SO
UR
CE
SC
urr
ent
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts56
0,45
0$
49,5
92$
10,3
08$
247
$
63$
21
$
170
$
549
$
56
1$
-
$
62
1,96
1$
Not
es, l
oans
and
acc
ount
s re
ceiv
able
, net
265,
519
32
,559
2,
597
-
-
-
-
1,
035
41,3
33
(50,
267)
29
2,77
6
Inve
stm
ents
-
-
-
-
-
-
-
-
21,7
02
-
21,7
02
In
vent
orie
s an
d ot
her
asse
ts44
,609
2,12
9
1
-
-
-
-
18
57
-
46,8
14
T
otal
cur
rent
ass
ets
870,
578
84
,280
12
,906
24
7
63
21
17
0
1,
602
63,6
53
(50,
267)
98
3,25
3
No
ncu
rren
t A
sset
sR
estr
icte
d ca
sh a
nd c
ash
equi
vale
nts
315,
522
-
-
-
-
-
-
-
-
-
315,
522
E
ndow
men
t inv
estm
ents
1,21
4,84
8
4,
296
16
5
8,
941
1,
383
1,92
4
-
-
-
-
1,
231,
557
Oth
er lo
ng-t
erm
inve
stm
ents
219,
257
1,
080
-
-
-
-
-
-
54,9
27
(263
)
275,
001
N
otes
, loa
ns a
nd a
ccou
nts
rece
ivab
le, n
et33
8,14
9
2
-
-
-
-
-
-
802
-
338,
953
O
ther
non
curr
ent a
sset
s28
3
-
-
-
-
-
-
-
-
-
28
3
Cap
ital a
sset
s, n
et
2,25
1,25
4
9,
504
-
-
-
-
-
137
75
,745
-
2,
336,
640
Tot
al n
oncu
rren
t ass
ets
4,33
9,31
3
14
,882
16
5
8,
941
1,
383
1,92
4
-
137
13
1,47
4
(2
63)
4,
497,
956
Tot
al a
sset
s5,
209,
891
99,1
62
13,0
71
9,18
8
1,44
6
1,
945
170
1,73
9
19
5,12
7
(5
0,53
0)
5,48
1,20
9
D
efer
red
Ou
tflo
ws
of
Res
ou
rces
13,7
55
-
-
-
-
-
-
-
-
-
13,7
55
T
otal
ass
ets
and
defe
rred
out
flow
s of
res
ourc
es5,
223,
646
99,1
62
13,0
71
9,18
8
1,44
6
1,
945
170
1,73
9
19
5,12
7
(5
0,53
0)
5,49
4,96
4
LIA
BIL
ITIE
S A
ND
DE
FE
RR
ED
INF
LO
WS
OF
RE
SO
UR
CE
SC
urr
ent
Lia
bili
ties
Acc
ount
s pa
yabl
e an
d ac
crue
d lia
bilit
ies
281,
889
10
,489
66
1
1
-
11
5
1,
602
119,
325
(120
,760
)
29
3,22
3
Une
arne
d re
venu
e67
,990
29,7
83
88
-
-
-
-
-
-
-
97
,861
Long
-ter
m li
abili
ties
- cu
rren
t por
tion
78,3
37
-
-
-
-
-
-
-
3,
066
-
81
,403
Tot
al c
urre
nt li
abili
ties
428,
216
40
,272
74
9
1
-
11
5
1,
602
122,
391
(120
,760
)
47
2,48
7
No
ncu
rren
t L
iab
iliti
esU
near
ned
reve
nue
193,
094
-
-
-
-
-
-
-
-
-
193,
094
Lo
ng-t
erm
liab
ilitie
s1,
091,
295
480
-
-
-
-
-
-
39
,226
-
1,
131,
001
Tot
al n
oncu
rren
t lia
bilit
ies
1,28
4,38
9
48
0
-
-
-
-
-
-
39,2
26
-
1,32
4,09
5
T
otal
liab
ilitie
s1,
712,
605
40,7
52
749
1
-
11
5
1,60
2
16
1,61
7
(1
20,7
60)
1,79
6,58
2
D
efer
red
Infl
ow
s o
f R
eso
urc
es24
1,12
4
-
-
-
-
-
-
-
-
-
24
1,12
4
Tot
al li
abili
ties
and
defe
rred
inflo
ws
of r
esou
rces
1,95
3,72
9
40,7
52
74
9
1
-
11
5
1,60
2
16
1,61
7
(120
,760
)
2,
037,
706
INT
ER
FU
ND
BA
LA
NC
ES
(934
)
-
93
4
-
-
-
-
-
-
-
-
NE
T P
OS
ITIO
N
Net
inve
stm
ent
in c
apit
al a
sset
s1,
379,
409
9,50
4
-
-
-
-
-
13
7
33,5
10
-
1,42
2,56
0
R
estr
icte
dN
onex
pend
able
578,
336
82
3
31
4,
607
61
8
659
-
-
-
-
58
5,07
4
Exp
enda
ble
440,
113
4,
395
63
4
4,
580
82
8
1,27
5
16
5
-
-
-
451,
990
T
otal
res
tric
ted
1,01
8,44
9
5,
218
66
5
9,
187
1,
446
1,93
4
16
5
-
-
-
1,03
7,06
4
U
nre
stri
cted
872,
993
43
,688
10
,723
-
-
-
-
-
-
70,2
30
99
7,63
4
Tot
al n
et p
ositi
on3,
270,
851
$
58,4
10$
11,3
88$
9,18
7$
1,44
6$
1,
934
$
165
$
137
$
33
,510
$
70
,230
$
3,45
7,25
8$
53
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F N
ET
PO
SIT
ION
AS
OF
JU
NE
30,
201
4(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alA
SS
ET
SC
urr
ent
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts34
3,01
1$
37,1
15$
6,31
3$
377
$
94$
4
$
109
$
587
$
25
3$
-
$
38
7,86
3$
Not
es, l
oans
and
acc
ount
s re
ceiv
able
, net
214,
446
33
,597
4,
393
-
-
-
-
-
24
,733
(3
7,08
1)
240,
088
In
vest
men
ts-
-
-
-
-
-
-
-
26
,452
-
26
,452
Inve
ntor
ies
and
othe
r as
sets
37,4
83
2,
898
-
-
-
-
-
14
53
(1
2)
40,4
36
T
otal
cur
rent
ass
ets
594,
940
73
,610
10
,706
37
7
94
4
10
9
60
1
51,4
91
(37,
093)
69
4,83
9
No
ncu
rren
t A
sset
sR
estr
icte
d ca
sh a
nd c
ash
equi
vale
nts
293,
028
-
-
-
-
-
-
-
-
-
293,
028
E
ndow
men
t inv
estm
ents
1,19
8,65
5
4,
256
13
7
8,
859
1,
370
1,94
9
-
-
-
-
1,
215,
226
Oth
er lo
ng-t
erm
inve
stm
ents
202,
498
1,
417
-
-
-
-
-
-
44,4
70
(277
)
248,
108
N
otes
, loa
ns a
nd a
ccou
nts
rece
ivab
le, n
et58
,831
-
-
-
-
-
-
-
801
(220
)
59,4
12
O
ther
non
curr
ent a
sset
s54
0
162
-
-
-
-
-
-
-
-
702
C
apita
l ass
ets,
net
1,
927,
980
13,5
22
-
-
-
-
-
20
2
37,7
00
-
1,97
9,40
4
T
otal
non
curr
ent a
sset
s3,
681,
532
19,3
57
137
8,85
9
1,37
0
1,
949
-
20
2
82,9
71
(497
)
3,79
5,88
0
T
otal
ass
ets
4,27
6,47
2
92
,967
10
,843
9,
236
1,
464
1,95
3
10
9
80
3
134,
462
(37,
590)
4,
490,
719
LIA
BIL
ITIE
S A
ND
DE
FE
RR
ED
INF
LO
WS
OF
RE
SO
UR
CE
SC
urr
ent
Lia
bili
ties
Acc
ount
s pa
yabl
e an
d ac
crue
d lia
bilit
ies
210,
922
14
,022
45
1
-
1
-
-
601
95
,126
(9
3,54
7)
227,
576
U
near
ned
reve
nue
31,2
42
28
,710
77
-
-
-
-
-
-
(12)
60
,017
Long
-ter
m li
abili
ties
- cu
rren
t por
tion
69,6
47
17
8
-
-
-
-
-
-
1,37
3
(120
)
71,0
78
T
otal
cur
rent
liab
ilitie
s31
1,81
1
42,9
10
528
-
1
-
-
60
1
96,4
99
(93,
679)
35
8,67
1
No
ncu
rren
t L
iab
iliti
esLo
ng-t
erm
liab
ilitie
s96
7,14
8
1,06
1
-
-
-
-
-
-
20
,267
(2
80)
98
8,19
6
Tot
al n
oncu
rren
t lia
bilit
ies
967,
148
1,
061
-
-
-
-
-
-
20,2
67
(280
)
988,
196
T
otal
liab
ilitie
s1,
278,
959
43,9
71
528
-
1
-
-
60
1
116,
766
(93,
959)
1,
346,
867
INT
ER
FU
ND
BA
LA
NC
ES
(2,3
69)
1,56
4
806
-
-
(1
)
-
-
-
-
-
NE
T P
OS
ITIO
N
Net
inve
stm
ent
in c
apit
al a
sset
s1,
317,
483
13,4
40
-
-
-
-
-
20
2
16,6
53
-
1,34
7,77
8
R
estr
icte
dN
onex
pend
able
569,
533
82
3
31
4,
607
61
7
654
-
-
-
-
57
6,26
5
Exp
enda
ble
414,
046
4,
192
65
3
4,
629
84
6
1,30
0
10
9
-
-
-
425,
775
T
otal
res
tric
ted
983,
579
5,
015
68
4
9,
236
1,
463
1,95
4
10
9
-
-
-
1,00
2,04
0
U
nre
stri
cted
698,
820
28
,977
8,
825
-
-
-
-
-
1,
043
56
,369
794,
034
Tot
al n
et p
ositi
on2,
999,
882
$
47,4
32$
9,50
9$
9,23
6$
1,46
3$
1,
954
$
109
$
202
$
17
,696
$
56
,369
$
3,14
3,85
2$
54
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F R
EV
EN
UE
S, E
XP
EN
SE
S A
ND
CH
AN
GE
S IN
NE
T P
OS
ITIO
N F
OR
TH
E Y
EA
R E
ND
ED
JU
NE
30,
201
5(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alO
PE
RA
TIN
G R
EV
EN
UE
SS
tude
nt tu
ition
and
fees
, net
302,
936
$
-
$
-$
-
$
-$
-
$
-
$
-$
-$
-$
302,
936
$
F
eder
al g
rant
s an
d co
ntra
cts
1,55
2
16
6,57
3
-
-
-
-
-
-
-
-
16
8,12
5
Sta
te a
nd lo
cal g
rant
s an
d co
ntra
cts
73,4
25
16
,890
1,
954
-
-
-
-
-
-
-
92,2
69
N
ongo
vern
men
tal g
rant
s an
d co
ntra
cts
201,
138
28
,851
6,
311
-
-
-
-
-
-
(206
,495
)
29
,805
Rec
over
ies
of fa
cilit
ies
and
adm
inis
trat
ive
cost
s27
1
47,8
83
-
-
-
-
-
-
-
-
48,1
54
S
ales
and
ser
vice
s25
,479
15,2
73
14,2
10
1
-
-
29
26,3
70
-
(2
7,25
0)
54,1
12
F
eder
al a
ppro
pria
tions
17,5
35
-
-
-
-
-
-
-
-
-
17,5
35
C
ount
y ap
prop
riat
ions
21,9
75
-
-
-
-
-
-
-
-
-
21,9
75
P
rofe
ssio
nal c
linic
al s
ervi
ce fe
es-
-
-
-
-
-
-
-
227,
197
(3
,906
)
22
3,29
1
Hos
pita
l ser
vice
s1,
328,
630
-
-
-
-
-
-
-
-
(4
,978
)
1,
323,
652
Aux
iliar
y en
terp
rise
s:
Hou
sing
and
din
ing,
net
40,2
07
-
-
-
-
-
-
-
-
(656
)
39,5
51
A
thle
tics
88,9
28
-
-
-
-
-
-
-
-
-
88,9
28
O
ther
aux
iliar
ies
46,7
54
-
-
-
-
-
-
-
-
(1)
46,7
53
O
ther
ope
ratin
g re
venu
es
853
-
-
-
-
-
-
-
79,1
85
(74,
979)
5,
059
Tot
al o
pera
ting
reve
nues
2,14
9,68
3
27
5,47
0
22
,475
1
-
-
29
26
,370
306,
382
(3
18,2
65)
2,46
2,14
5
O
PE
RA
TIN
G E
XP
EN
SE
SE
duca
tiona
l and
gen
eral
:In
stru
ctio
n27
4,97
0
10,5
55
1,02
8
-
1
59
-
-
-
(236
)
286,
377
R
esea
rch
84,8
83
16
0,75
5
18
0
42
-
-
-
-
-
(2
,349
)
24
3,51
1
Pub
lic s
ervi
ce17
4,90
8
75,6
75
3,55
0
-
-
-
-
-
-
(7
2,59
6)
181,
537
Li
brar
ies
21,0
85
-
-
-
-
-
-
-
-
(1)
21,0
84
A
cade
mic
sup
port
67,4
72
1,
825
3,
812
-
-
-
-
-
-
(31)
73
,078
Stu
dent
ser
vice
s37
,748
-
1,
038
-
1
-
-
-
-
(139
)
38,6
48
In
stitu
tiona
l sup
port
55,0
13
56
9
12
5
6
-
-
10
2
26
,357
-
(26,
549)
55
,623
Ope
ratio
ns a
nd m
aint
enan
ce o
f pla
nt
70,9
04
1
391
-
-
-
-
-
-
(1
92)
71
,104
Stu
dent
fina
ncia
l aid
30,2
61
1,
328
1,
266
-
40
-
-
-
-
(1)
32,8
94
D
epre
ciat
ion
64,1
25
1,
380
-
-
-
-
-
43
-
-
65,5
48
T
otal
edu
catio
nal a
nd g
ener
al88
1,36
9
252,
088
11,3
90
48
42
59
102
26,4
00
-
(1
02,0
94)
1,06
9,40
4
C
linic
al o
pera
tions
(in
clud
ing
depr
ecia
tion
of $
2,74
3)17
9,67
5
-
-
-
-
-
-
-
28
9,62
7
(222
,871
)
24
6,43
1
Hos
pita
l (in
clud
ing
depr
ecia
tion
of $
53,1
67)
1,14
1,83
5
-
60
-
-
-
-
-
-
(7
,772
)
1,
134,
123
Aux
iliar
y en
terp
rise
s:
Hou
sing
and
din
ing
(inc
ludi
ng d
epre
ciat
ion
of $
5,27
9)31
,249
-
-
-
-
-
-
-
-
(9
)
31
,240
Ath
letic
s (i
nclu
ding
dep
reci
atio
n of
$6,
031)
102,
156
-
-
-
-
-
-
-
-
(460
)
101,
696
O
ther
aux
iliar
ies
(inc
ludi
ng d
epre
ciat
ion
of $
1,60
6)26
,221
-
-
-
-
-
-
-
-
(5
02)
25
,719
Oth
er o
pera
ting
expe
nses
640
-
-
-
-
-
-
-
-
-
640
T
otal
ope
ratin
g ex
pens
es2,
363,
145
252,
088
11,4
50
48
42
59
102
26,4
00
28
9,62
7
(333
,708
)
2,
609,
253
Net
inco
me
(los
s) fr
om o
pera
tions
(213
,462
)
23,3
82
11,0
25
(47)
(4
2)
(59)
(7
3)
(30)
16,7
55
15,4
43
(1
47,1
08)
N
ON
OP
ER
AT
ING
RE
VE
NU
ES
(E
XP
EN
SE
S)
Sta
te a
ppro
pria
tions
279,
611
-
-
-
-
-
-
-
-
-
279,
611
G
ifts
and
non-
exch
ange
gra
nts
105,
557
46
1
19
0
11
8
1
-
129
-
-
(950
)
105,
506
In
vest
men
t inc
ome
(los
s)27
,338
18,0
47
9
17
5
27
39
-
1
102
(5
50)
45
,188
Inte
rest
on
capi
tal a
sset
-rel
ated
deb
t(2
6,71
0)
(49)
-
-
-
-
-
-
(9
32)
-
(2
7,69
1)
Gra
nt to
/(fr
om)
the
Uni
vers
ity fo
r no
n-ca
pita
l pur
pose
s36
,167
(2
6,43
1)
(9
,433
)
(2
95)
(3
)
(5)
-
-
-
-
-
Oth
er n
onop
erat
ing
reve
nues
and
exp
ense
s, n
et7,
145
1,84
3
-
-
-
-
-
-
-
8,98
8
N
et n
onop
erat
ing
reve
nues
(ex
pens
es)
429,
108
(6
,129
)
(9,2
34)
(2
)
25
34
129
1
(830
)
(1,5
00)
411,
602
N
et in
com
e (l
oss)
bef
ore
othe
r re
venu
es, e
xpen
ses,
gai
ns, o
r lo
sses
215,
646
17
,253
1,
791
(4
9)
(17)
(2
5)
56
(29)
15,9
25
13,9
43
26
4,49
4
Cap
ital g
rant
s an
d gi
fts38
,999
6,42
4
-
-
-
-
-
-
-
(82)
45
,341
Add
ition
s to
per
man
ent e
ndow
men
ts7,
752
1
-
-
-
5
-
-
-
-
7,75
8
G
rant
to/(
from
) th
e U
nive
rsity
for
capi
tal p
urpo
ses
11,0
88
(1
1,17
6)
88
-
-
-
-
-
-
-
-
Oth
er, n
et(2
,516
)
(1
,524
)
-
-
-
-
-
(36)
(111
)
-
(4,1
87)
Tot
al o
ther
rev
enue
s (e
xpen
ses)
55,3
23
(6
,275
)
88
-
-
5
-
(36)
(111
)
(82)
48
,912
INC
RE
AS
E (
DE
CR
EA
SE
) IN
NE
T P
OS
ITIO
N27
0,96
9
10,9
78
1,87
9
(49)
(1
7)
(20)
56
(6
5)
15
,814
13
,861
313,
406
N
ET
PO
SIT
ION
, beg
inn
ing
of
year
2,99
9,88
2
47
,432
9,
509
9,
236
1,
463
1,95
4
10
9
20
2
17,6
96
56,3
69
3,
143,
852
NE
T P
OS
ITIO
N, e
nd
of
year
3,27
0,85
1$
58
,410
$
11
,388
$
9,
187
$
1,
446
$
1,93
4$
16
5$
13
7$
33,5
10$
70,2
30$
3,
457,
258
$
55
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F R
EV
EN
UE
S, E
XP
EN
SE
S A
ND
CH
AN
GE
S IN
NE
T P
OS
ITIO
N F
OR
TH
E Y
EA
R E
ND
ED
JU
NE
30,
201
4(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alO
PE
RA
TIN
G R
EV
EN
UE
SS
tude
nt tu
ition
and
fees
, net
287,
517
$
-
$
-$
-
$
-$
-
$
-
$
-$
-$
-$
287,
517
$
F
eder
al g
rant
s an
d co
ntra
cts
1,55
3
15
8,83
1
-
-
-
-
-
-
-
-
16
0,38
4
Sta
te a
nd lo
cal g
rant
s an
d co
ntra
cts
47,6
53
19
,102
1,
000
-
-
-
-
-
-
-
67,7
55
N
ongo
vern
men
tal g
rant
s an
d co
ntra
cts
140,
475
27
,283
9,
193
-
-
-
-
-
-
(148
,911
)
28
,040
Rec
over
ies
of fa
cilit
ies
and
adm
inis
trat
ive
cost
s32
0
46,8
39
-
-
-
-
-
-
-
-
47,1
59
S
ales
and
ser
vice
s27
,635
14,0
65
13,7
81
-
-
-
34
6,77
9
-
(7
,529
)
54
,765
Fed
eral
app
ropr
iatio
ns17
,921
-
-
-
-
-
-
-
-
-
17
,921
Cou
nty
appr
opri
atio
ns20
,338
-
-
-
-
-
-
-
-
-
20
,338
Pro
fess
iona
l clin
ical
ser
vice
fees
-
-
-
-
-
-
-
-
20
7,73
4
(4,0
13)
203,
721
H
ospi
tal s
ervi
ces
1,11
3,45
3
-
-
-
-
-
-
-
-
(11,
791)
1,
101,
662
Aux
iliar
y en
terp
rise
s:H
ousi
ng a
nd d
inin
g, n
et46
,402
-
-
-
-
-
-
-
-
(2
,248
)
44
,154
Ath
letic
s73
,957
-
-
-
-
-
-
-
-
-
73
,957
Oth
er a
uxili
arie
s39
,346
-
-
-
-
-
-
-
-
(2
,064
)
37
,282
Oth
er o
pera
ting
reve
nues
96
7
-
-
-
-
-
-
-
21
,732
(1
8,18
3)
4,51
6
T
otal
ope
ratin
g re
venu
es1,
817,
537
266,
120
23,9
74
-
-
-
34
6,77
9
22
9,46
6
(194
,739
)
2,
149,
171
OP
ER
AT
ING
EX
PE
NS
ES
Edu
catio
nal a
nd g
ener
al:
Inst
ruct
ion
260,
345
11
,546
98
1
-
6
52
-
-
-
(1
,073
)
27
1,85
7
Res
earc
h89
,977
157,
451
302
24
-
-
-
-
-
(2,4
41)
245,
313
P
ublic
ser
vice
152,
614
71
,145
3,
154
-
-
-
-
-
-
(15,
434)
21
1,47
9
Libr
arie
s21
,089
-
-
-
-
-
-
-
-
(1
9)
21,0
70
A
cade
mic
sup
port
64,2
70
2,
882
4,
647
-
-
-
-
-
-
(317
)
71,4
82
S
tude
nt s
ervi
ces
36,1
41
24
1,
094
-
2
-
-
-
-
(471
)
36,7
90
In
stitu
tiona
l sup
port
48,8
45
72
0
12
2
-
-
-
12
5
6,
676
-
(7,1
93)
49,2
95
O
pera
tions
and
mai
nten
ance
of p
lant
76
,878
7
23
7
-
-
-
-
-
-
(227
)
76,8
95
S
tude
nt fi
nanc
ial a
id37
,960
1,28
1
2,87
6
-
40
-
-
-
-
(5
8)
42,0
99
D
epre
ciat
ion
63,9
80
1,
480
-
-
-
-
-
62
-
-
65,5
22
T
otal
edu
catio
nal a
nd g
ener
al85
2,09
9
246,
536
13,4
13
24
48
52
125
6,73
8
-
(2
7,23
3)
1,09
1,80
2
C
linic
al o
pera
tions
(in
clud
ing
depr
ecia
tion
of $
2,02
1)11
6,78
3
-
-
-
-
-
-
-
22
6,91
7
(172
,745
)
17
0,95
5
Hos
pita
l (in
clud
ing
depr
ecia
tion
of $
51,4
60)
1,02
3,01
1
-
59
-
-
-
-
-
-
(8
,338
)
1,
014,
732
Aux
iliar
y en
terp
rise
s:H
ousi
ng a
nd d
inin
g (i
nclu
ding
dep
reci
atio
n of
$5,
446)
48,7
22
-
-
-
-
-
-
-
-
(514
)
48,2
08
A
thle
tics
(inc
ludi
ng d
epre
ciat
ion
of $
5,73
4)93
,550
-
-
-
-
-
-
-
-
(1
,462
)
92
,088
Oth
er a
uxili
arie
s (i
nclu
ding
dep
reci
atio
n of
$1,
079)
22,9
51
-
-
-
-
-
-
-
-
(537
)
22,4
14
O
ther
ope
ratin
g ex
pens
es1,
384
-
-
-
-
-
-
-
-
-
1,
384
Tot
al o
pera
ting
expe
nses
2,15
8,50
0
24
6,53
6
13
,472
24
48
52
12
5
6,
738
226,
917
(2
10,8
29)
2,44
1,58
3
N
et in
com
e (l
oss)
from
ope
ratio
ns(3
40,9
63)
19
,584
10
,502
(2
4)
(48)
(5
2)
(91)
41
2,54
9
16
,090
(292
,412
)
NO
NO
PE
RA
TIN
G R
EV
EN
UE
S (
EX
PE
NS
ES
)S
tate
app
ropr
iatio
ns28
3,86
9
-
-
-
-
-
-
-
-
-
28
3,86
9
Gift
s an
d no
n-ex
chan
ge g
rant
s97
,185
191
208
92
1
-
11
8
-
-
(1
,024
)
96
,771
Inve
stm
ent i
ncom
e (l
oss)
153,
922
39
9
29
1,
220
18
9
268
-
-
87
(5
67)
15
5,54
7
Inte
rest
on
capi
tal a
sset
-rel
ated
deb
t(2
9,37
1)
(14)
-
-
-
-
-
-
(9
03)
-
(3
0,28
8)
Gra
nt to
/(fr
om)
the
Uni
vers
ity fo
r no
n-ca
pita
l pur
pose
s21
,502
(1
1,83
9)
(9
,526
)
(1
29)
(3
)
(5)
-
-
-
-
-
Oth
er n
onop
erat
ing
reve
nues
and
exp
ense
s, n
et4,
517
2,93
2
-
-
-
-
-
-
-
-
7,44
9
N
et n
onop
erat
ing
reve
nues
(ex
pens
es)
531,
624
(8
,331
)
(9,2
89)
1,
183
18
7
263
11
8
-
(8
16)
(1
,591
)
51
3,34
8
Net
inco
me
(los
s) b
efor
e ot
her
reve
nues
, exp
ense
s, g
ains
, or
loss
es19
0,66
1
11,2
53
1,21
3
1,15
9
139
21
1
27
41
1,
733
14,4
99
22
0,93
6
Cap
ital g
rant
s an
d gi
fts50
,626
3,59
9
-
-
-
-
-
-
(157
)
54,0
68
A
dditi
ons
to p
erm
anen
t end
owm
ents
7,61
4
1
-
-
-
3
-
-
-
(4
0)
7,57
8
G
rant
to/(
from
) th
e U
nive
rsity
for
capi
tal p
urpo
ses
16,9
49
(1
6,94
3)
(4
)
-
-
(2)
-
-
-
-
-
O
ther
, net
(1,1
87)
(49)
-
-
-
-
-
-
-
-
(1
,236
)
T
otal
oth
er r
even
ues
(exp
ense
s)74
,002
(13,
392)
(4)
-
-
1
-
-
-
(1
97)
60
,410
INC
RE
AS
E (
DE
CR
EA
SE
) IN
NE
T P
OS
ITIO
N26
4,66
3
(2,1
39)
1,
209
1,
159
13
9
212
27
41
1,73
3
14
,302
281,
346
N
ET
PO
SIT
ION
, beg
inn
ing
of
year
2,73
5,21
9
49
,571
8,
300
8,
077
1,
324
1,74
2
82
16
1
15,9
63
42,0
67
2,
862,
506
NE
T P
OS
ITIO
N, e
nd
of
year
2,99
9,88
2$
47
,432
$
9,
509
$
9,
236
$
1,
463
$
1,95
4$
10
9$
20
2$
17,6
96$
56,3
69$
3,
143,
852
$
56
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F C
AS
H F
LO
WS
FO
R T
HE
YE
AR
EN
DE
D J
UN
E 3
0, 2
015
(in
th
ou
san
ds)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alC
AS
H F
LO
WS
FR
OM
OP
ER
AT
ING
AC
TIV
ITIE
S
Stu
de
nt t
uiti
on
an
d fe
es
30
1,4
54
$
-$
-$
-$
-$
-
$
-$
-$
-$
-$
3
01
,45
4$
Gra
nts
an
d c
on
tra
cts
26
7,3
04
21
3,6
31
1
0,2
24
-
-
-
-
-
-
(2
06
,49
5)
28
4,6
64
Re
cove
ries
of f
aci
litie
s a
nd
ad
min
istr
ativ
e c
ost
s2
75
48
,18
2
-
-
-
-
-
-
-
-
4
8,4
57
Sa
les
an
d s
erv
ice
s2
8,5
95
1
6,1
66
14
,06
1
1
-
-
2
9
2
4,7
71
-
(3
0,1
58
)
5
3,4
65
Fe
de
ral a
pp
rop
riatio
ns
18
,74
9
-
-
-
-
-
-
-
-
-
18
,74
9
Co
un
ty a
pp
rop
riatio
ns
22
,64
0
-
-
-
-
-
-
-
-
-
22
,64
0
Pa
yme
nts
to v
en
do
rs a
nd
co
ntr
act
ors
(73
7,4
85
)
(8
6,5
51
)
(7,7
30
)
(1
8)
(42
)
(2
2)
(95
)
(1,3
47
)
(25
4,6
57
)
30
6,5
59
(78
1,3
88
)
Stu
de
nt f
ina
nci
al a
id(3
1,6
30
)
-
(1
,26
6)
-
-
-
-
-
-
-
(32
,89
6)
Sa
larie
s, w
ag
es
an
d b
en
efit
s(1
,44
7,9
24
)
(16
2,2
43
)
(2,2
48
)
(2
9)
-
(2
4)
(2)
(23
,44
9)
(8,5
01
)
-
(1,6
44
,42
0)
Pro
fess
ion
al c
linic
se
rvic
e fe
es
-
-
-
-
-
-
-
-
21
0,5
97
1
1,1
31
2
21
,72
8
Ho
spita
l se
rvic
es
1,3
42
,86
4
-
-
-
-
-
-
-
-
(4
,20
5)
1
,33
8,6
59
Au
xilia
ry e
nte
rpris
e r
ece
ipts
17
2,0
42
-
-
-
-
-
-
-
-
(6
57
)
1
71
,38
5
Lo
an
s is
sue
d to
stu
de
nts
(18
,23
1)
-
-
-
-
-
-
-
-
-
(18
,23
1)
Co
llect
ion
of l
oa
ns
to s
tud
en
ts1
8,4
25
-
-
-
-
-
-
-
-
-
1
8,4
25
Se
lf in
sura
nce
re
ceip
ts6
0,8
82
-
-
-
-
-
-
-
47
0
-
6
1,3
52
Se
lf in
sura
nce
pa
yme
nts
(56
,75
0)
-
-
-
-
-
-
-
-
-
(56
,75
0)
Oth
er
op
era
ting
re
ceip
ts (
pa
yme
nts
), n
et
37
5
-
-
-
-
-
-
-
78
,64
8
(7
4,5
78
)
4
,44
5
Ne
t ca
sh p
rovi
de
d (
use
d)
by
op
era
ting
act
iviti
es
(58
,41
5)
29
,18
5
1
3,0
41
(46
)
(4
2)
(46
)
(6
8)
(2
5)
2
6,5
57
1,5
97
1
1,7
38
CA
SH
FL
OW
S F
RO
M N
ON
CA
PIT
AL
FIN
AN
CIN
G A
CT
IVIT
IES
Sta
te a
pp
rop
riatio
ns
27
9,6
11
-
-
-
-
-
-
-
-
-
2
79
,61
1
Gift
s a
nd
gra
nts
re
ceiv
ed
for
oth
er
tha
n c
ap
ital p
urp
ose
s:
G
ifts
rece
ive
d fo
r e
nd
ow
me
nt p
urp
ose
s7
,77
6
1
-
-
-
5
-
-
-
-
7
,78
2
G
ifts
rece
ive
d fo
r o
the
r p
urp
ose
s1
13
,29
6
4
42
1
90
1
18
-
-
1
29
-
-
(95
0)
11
3,2
25
Ag
en
cy a
nd
loa
n p
rog
ram
re
ceip
ts2
27
,34
7
-
-
-
-
-
-
-
-
-
2
27
,34
7
Ag
en
cy a
nd
loa
n p
rog
ram
pa
yme
nts
(22
9,3
98
)
-
-
-
-
-
-
-
-
-
(2
29
,39
8)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
no
n-c
ap
ital p
urp
ose
s3
7,6
02
(2
7,9
94
)
(9,3
05
)
(2
95
)
(3)
(5
)
-
-
-
-
-
Oth
er
no
nca
pita
l fin
an
cin
g r
ece
ipts
(p
aym
en
ts),
ne
t1
4,4
38
3
,72
7
-
-
-
-
-
-
-
-
1
8,1
65
Ne
t ca
sh p
rovi
de
d (
use
d)
by
no
nca
pita
l fin
an
cin
g a
ctiv
itie
s4
50
,67
2
(2
3,8
24
)
(9,1
15
)
(1
77
)
(3)
-
12
9
-
-
(9
50
)
4
16
,73
2
CA
SH
FL
OW
S F
RO
M C
AP
ITA
L A
ND
RE
LA
TE
D F
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ING
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TIV
ITIE
S
Ca
pita
l gra
nts
an
d g
ifts
24
,63
2
6,4
24
-
-
-
-
-
-
-
(8
2)
3
0,9
74
Pu
rch
ase
s o
f ca
pita
l ass
ets
(26
6,0
98
)
(8
63
)
-
-
-
-
-
(14
)
(17
,05
6)
-
(2
84
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1)
Pro
cee
ds
fro
m c
ap
ital d
eb
t3
92
,07
7
-
-
-
-
-
-
-
-
-
39
2,0
77
Pa
yme
nts
to r
efu
nd
ing
bo
nd
ag
en
ts(2
48
,64
2)
-
-
-
-
-
-
-
-
-
(2
48
,64
2)
Pro
cee
ds
fro
m s
ale
s o
f ca
pita
l ass
ets
10
,18
0
-
-
-
-
-
-
-
-
-
1
0,1
80
Prin
cip
al p
aid
on
ca
pita
l de
bt a
nd
lea
ses
(47
,02
4)
(19
4)
-
-
-
-
-
-
(2,6
54
)
-
(4
9,8
72
)
Inte
rest
pa
id o
n c
ap
ital d
eb
t an
d le
ase
s(3
3,8
68
)
(4
9)
-
-
-
-
-
-
(9
32
)
-
(34
,84
9)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
cap
ital p
urp
ose
s1
1,0
88
(1
1,1
76
)
88
-
-
-
-
-
-
-
-
Oth
er
cap
ital a
nd
re
late
d fi
na
nci
ng
re
ceip
ts (
pa
yme
nts
), n
et
5,3
86
(1
)
-
-
-
-
-
-
-
-
5,3
85
Ne
t ca
sh p
rovi
de
d (
use
d)
by
cap
ital a
nd
re
late
d fi
na
nci
ng
act
iviti
es
(15
2,2
69
)
(5
,85
9)
88
-
-
-
-
(14
)
(20
,64
2)
(8
2)
(1
78
,77
8)
CA
SH
FL
OW
S F
RO
M IN
VE
ST
ING
AC
TIV
ITIE
S
Pro
cee
ds
fro
m s
ale
s a
nd
ma
turit
ies
of i
nve
stm
en
ts, n
et
31
3,6
35
(2,9
46
)
4
1
,58
9
2
46
38
5
-
-
45
-
3
12
,95
8
Inte
rest
an
d d
ivid
en
ds
on
inve
stm
en
ts2
0,2
11
9
7
8
9
3
1
4
20
-
1
(29
)
(5
65
)
1
9,8
50
Pu
rch
ase
of i
nve
stm
en
ts(3
33
,90
1)
(77
9)
(3
1)
(1,5
89
)
(2
46
)
(3
42
)
-
-
(5,6
23
)
-
(34
2,5
11
)
Ne
t pro
cee
ds
fro
m s
ale
of C
LI s
tock
, ne
t of c
ash
acq
uire
d
-
2
3,2
19
-
-
-
-
-
-
-
(3
,34
2)
1
9,8
77
Re
pa
yme
nt o
f de
bt a
nd
oth
er
rela
ted
ro
sa
le o
f CL
I sto
ck-
(6,6
16
)
-
-
-
-
-
-
-
3,3
42
(3
,27
4)
Ne
t ca
sh p
rovi
de
d (
use
d)
by
inve
stin
g a
ctiv
itie
s(5
5)
1
2,9
75
(19
)
9
3
1
4
63
-
1
(5,6
07
)
(5
65
)
6
,90
0
NE
T IN
CR
EA
SE
(D
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RE
AS
E)
IN C
AS
H A
ND
CA
SH
EQ
UIV
AL
EN
TS
23
9,9
33
12
,47
7
3
,99
5
(1
30
)
(31
)
1
7
61
(38
)
30
8
-
2
56
,59
2
CA
SH
AN
D C
AS
H E
QU
IVA
LE
NT
S, b
eg
inn
ing
of
ye
ar
63
6,0
39
37
,11
5
6
,31
3
3
77
9
4
4
10
9
58
7
25
3
-
6
80
,89
1
CA
SH
AN
D C
AS
H E
QU
IVA
LE
NT
S, e
nd
of
ye
ar
87
5,9
72
$
49
,59
2$
1
0,3
08
$
24
7$
6
3$
21
$
1
70
$
5
49
$
5
61
$
-$
9
37
,48
3$
57
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Fou
ndat
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The
F
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Res
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ndat
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Tot
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FR
OM
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Stu
de
nt t
uiti
on
an
d fe
es
28
8,9
22
$
-$
-$
-$
-$
-
$
-$
-$
-$
-$
2
88
,92
2$
Gra
nts
an
d c
on
tra
cts
18
9,5
81
19
8,9
83
7
,86
9
-
-
-
-
-
-
(14
8,9
11
)
24
7,5
22
Re
cove
ries
of f
aci
litie
s a
nd
ad
min
istr
ativ
e c
ost
s5
09
45
,40
8
-
-
-
-
-
-
-
-
4
5,9
17
Sa
les
an
d s
erv
ice
s2
5,3
96
1
5,0
70
14
,04
9
-
-
-
3
4
6
,42
4
-
(7
,13
7)
5
3,8
36
Fe
de
ral a
pp
rop
riatio
ns
17
,11
7
-
-
-
-
-
-
-
-
-
17
,11
7
Co
un
ty a
pp
rop
riatio
ns
21
,40
0
-
-
-
-
-
-
-
-
-
21
,40
0
Pa
yme
nts
to v
en
do
rs a
nd
co
ntr
act
ors
(61
8,5
02
)
(8
4,7
57
)
(6,9
99
)
(2
)
(4
3)
(21
)
(1
25
)
(8
37
)
(1
98
,63
2)
1
88
,83
2
(7
21
,08
6)
Stu
de
nt f
ina
nci
al a
id(3
9,2
06
)
-
(2
,87
6)
-
-
-
-
-
-
-
(42
,08
2)
Sa
larie
s, w
ag
es
an
d b
en
efit
s(1
,34
9,7
23
)
(16
1,8
19
)
(3,5
61
)
(2
3)
(4)
(3
9)
-
(5,3
94
)
(9,4
32
)
-
(1,5
29
,99
5)
Pro
fess
ion
al c
linic
se
rvic
e fe
es
-
-
-
-
-
-
-
-
20
9,2
26
3
,19
8
21
2,4
24
Ho
spita
l se
rvic
es
1,1
08
,77
9
-
-
-
-
-
-
-
-
(1
1,8
02
)
1
,09
6,9
77
Au
xilia
ry e
nte
rpris
e r
ece
ipts
15
7,9
72
-
-
-
-
-
-
-
-
(4
,31
3)
1
53
,65
9
Lo
an
s is
sue
d to
stu
de
nts
(21
,18
8)
-
-
-
-
-
-
-
-
-
(21
,18
8)
Co
llect
ion
of l
oa
ns
to s
tud
en
ts1
9,8
18
-
-
-
-
-
-
-
-
-
1
9,8
18
Se
lf in
sura
nce
re
ceip
ts4
7,9
29
-
-
-
-
-
-
-
3,3
01
-
5
1,2
30
Se
lf in
sura
nce
pa
yme
nts
(48
,21
7)
-
-
-
-
-
-
-
-
-
(48
,21
7)
Oth
er
op
era
ting
re
ceip
ts (
pa
yme
nts
), n
et
40
1
-
-
-
-
-
-
-
21
,20
6
(1
8,0
63
)
3
,54
4
Ne
t ca
sh p
rovi
de
d (
use
d)
by
op
era
ting
act
iviti
es
(19
9,0
12
)
1
2,8
85
8,4
82
(25
)
(4
7)
(60
)
(9
1)
1
93
2
5,6
69
1,8
04
(1
50
,20
2)
CA
SH
FL
OW
S F
RO
M N
ON
CA
PIT
AL
FIN
AN
CIN
G A
CT
IVIT
IES
Sta
te a
pp
rop
riatio
ns
28
3,8
69
-
-
-
-
-
-
-
-
-
2
83
,86
9
Gift
s a
nd
gra
nts
re
ceiv
ed
for
oth
er
tha
n c
ap
ital p
urp
ose
s:
G
ifts
rece
ive
d fo
r e
nd
ow
me
nt p
urp
ose
s7
,59
0
1
-
-
-
3
-
-
-
(40
)
7
,55
4
G
ifts
rece
ive
d fo
r o
the
r p
urp
ose
s8
9,1
15
1
91
2
08
1
07
1
-
11
8
-
-
(1
,02
4)
8
8,7
16
Ag
en
cy a
nd
loa
n p
rog
ram
re
ceip
ts2
25
,25
2
-
-
-
-
-
-
-
-
-
2
25
,25
2
Ag
en
cy a
nd
loa
n p
rog
ram
pa
yme
nts
(22
6,0
11
)
-
-
-
-
-
-
-
-
-
(2
26
,01
1)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
no
n-c
ap
ital p
urp
ose
s2
2,0
41
(1
2,4
05
)
(9,4
99
)
(1
29
)
(3)
(5
)
-
-
-
-
-
Oth
er
no
nca
pita
l fin
an
cin
g r
ece
ipts
(p
aym
en
ts),
ne
t2
6,6
36
3
,63
4
-
-
-
-
-
-
-
-
3
0,2
70
Ne
t ca
sh p
rovi
de
d (
use
d)
by
no
nca
pita
l fin
an
cin
g a
ctiv
itie
s4
28
,49
2
(8
,57
9)
(9,2
91
)
(2
2)
(2)
(2
)
11
8
-
-
(1
,06
4)
4
09
,65
0
CA
SH
FL
OW
S F
RO
M C
AP
ITA
L A
ND
RE
LA
TE
D F
INA
NC
ING
AC
TIV
ITIE
S
Ca
pita
l gra
nts
an
d g
ifts
43
,54
7
3,5
99
-
-
-
-
-
-
-
(1
57)
4
6,9
89
Pu
rch
ase
s o
f ca
pita
l ass
ets
(13
6,5
06
)
(7
96
)
-
-
-
-
-
(10
4)
(2,5
49
)
-
(1
39
,95
5)
Pro
cee
ds
fro
m c
ap
ital d
eb
t2
51
,92
0
-
-
-
-
-
-
-
-
-
25
1,9
20
Prin
cip
al p
aid
on
ca
pita
l de
bt a
nd
lea
ses
(49
,93
9)
(20
2)
-
-
-
-
-
-
(75
9)
-
(5
0,9
00
)
Inte
rest
pa
id o
n c
ap
ital d
eb
t an
d le
ase
s(2
7,5
43
)
(1
4)
-
-
-
-
-
-
(9
03
)
-
(28
,46
0)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
cap
ital p
urp
ose
s1
6,9
72
(1
6,9
66
)
(4)
-
-
(2
)
-
-
-
-
-
Oth
er
cap
ital a
nd
re
late
d fi
na
nci
ng
re
ceip
ts (
pa
yme
nts
), n
et
1,0
73
4
96
-
-
-
-
-
-
-
-
1,5
69
Ne
t ca
sh p
rovi
de
d (
use
d)
by
cap
ital a
nd
re
late
d fi
na
nci
ng
act
iviti
es
99
,52
4
(13
,88
3)
(4
)
-
-
(2)
-
(1
04
)
(4
,21
1)
(15
7)
81
,16
3
CA
SH
FL
OW
S F
RO
M IN
VE
ST
ING
AC
TIV
ITIE
S
Pro
cee
ds
fro
m s
ale
s a
nd
ma
turit
ies
of i
nve
stm
en
ts7
08
,06
3
2
,43
2
2
00
4
,90
8
7
59
1,0
77
-
-
43
-
7
17
,48
2
Inte
rest
an
d d
ivid
en
ds
on
inve
stm
en
ts1
6,0
25
1
07
7
1
13
1
7
25
-
-
(1,9
88
)
(5
83
)
1
3,7
23
Pu
rch
ase
of i
nve
stm
en
ts(8
12
,95
5)
(2,5
20
)
(7
3)
(4,7
25
)
(7
31
)
(1
,04
0)
-
-
(20
,74
8)
-
(84
2,7
92
)
Ne
t ca
sh p
rovi
de
d (
use
d)
by
inve
stin
g a
ctiv
itie
s(8
8,8
67
)
1
9
1
34
2
96
4
5
62
-
-
(22
,69
3)
(5
83
)
(1
11
,58
7)
NE
T IN
CR
EA
SE
(D
EC
RE
AS
E)
IN C
AS
H A
ND
CA
SH
EQ
UIV
AL
EN
TS
24
0,1
37
(9,5
58
)
(6
79
)
24
9
(4)
(2
)
27
89
(1
,23
5)
-
2
29
,02
4
CA
SH
AN
D C
AS
H E
QU
IVA
LE
NT
S, b
eg
inn
ing
of
ye
ar
39
5,9
02
46
,67
3
6
,99
2
1
28
9
8
6
82
49
8
1,4
88
-
4
51
,86
7
CA
SH
AN
D C
AS
H E
QU
IVA
LE
NT
S, e
nd
of
ye
ar
63
6,0
39
$
37
,11
5$
6
,31
3$
37
7$
9
4$
4$
1
09
$
5
87
$
2
53
$
-$
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UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKY
REQUIRED SUPPLEMENTARY INFORMATION
1. HEALTH INSURANCE BENEFITS FOR RETIREES
The University of Kentucky's (the University) Other Postemployment Benefit (OPEB) plan is administered through the University's OPEB trust fund as an irrevocable trust. Assets of the trust fund are dedicated to providing post-retirement health insurance coverage to current and eligible future university retirees. Only employees hired prior to January 1, 2006 are eligible to receive post-retirement health insurance benefits. The following schedules present the University’s actuarially determined funding progress and required contributions for the University’s OPEB trust using the projected unit credit actuarial cost method:
`
Valuation Date
Actuarial Value of Assets
Actuarial Accrued
Liability (AAL)
UnfundedActuarial Accrued
Liability (UAAL)Funded Ratio
AnnualCoveredPayroll
UAAL as a Percentage of
Covered Payroll
July 1, 2013 $75,362 $252,938 $177,576 29.8% $526,073 33.7%
July 1, 2014 $97,317 $268,335 $171,018 36.3% $513,748 33.3%
July 1, 2015 $108,815 $337,665 $228,850 32.2% $509,627 44.9%
Schedule of Funding Progress by Valuation Date(in thousands)
Year Ended
Annual RequiredContributions
PercentageContributed
June 30, 2013 $20,392 100.4%June 30, 2014 $19,801 100.0%June 30, 2015 $20,395 100.7%
Schedule of Employer Contributions (in thousands)
2. LONG-TERM DISABILITY BENEFIT PLAN
The University is self-funded for a long-term disability income program and has established a trust for the
purpose of paying claims and establishing necessary reserves. Regular employees with a full-time equivalent of .75 or greater who have completed 12 months of service are automatically enrolled in the plan.
The following schedules present the University’s actuarially determined funding progress and required contributions for the University’s long-term disability benefit trust fund using the projected unit credit actuarial cost method:
Valuation Date
Actuarial Value of Assets
Actuarial Accrued
Liability (AAL)
UnfundedActuarial Accrued
Liability (UAAL)Funded Ratio
AnnualCoveredPayroll
UAAL as a Percentage of
Covered Payroll
July 1, 2013 $13,362 $22,667 $9,305 58.9% $725,189 1.3%
July 1, 2014 $15,977 $23,650 $7,673 67.6% $768,214 1.0%
July 1, 2015 $16,576 $22,730 $6,154 72.9% $813,205 0.8%
Schedule of Funding Progress by Valuation Date(in thousands)
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Year Ended
Annual RequiredContributions
PercentageContributed
June 30, 2013 $2,012 99.8%
June 30, 2014 $2,139 100.5%
June 30, 2015 $2,203 99.7%
Schedule of Employer Contributions (in thousands)
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Officers of the Board Oliver Keith Gannon, Chair Barbara Young, Vice Chair Sheila Brothers, Secretary William E. Thro, Assistant Secretary Board of Trustees C.B. Akins, Sr. James H. Booth William C. Britton Edward Britt Brockman Mark P. Bryant Angela L. Edwards William Stamps Farish, Jr. Carol Martin “Bill” Gatton Cammie DeShields Grant Robert Grossman David V. Hawpe Kelly Sullivan Holland Jacob Ingram Terry Mobley James W. Stuckert Robert D. Vance John F. Wilson Executive Officers Eli Capilouto, President Timothy Tracy, Provost Michael Karpf, Executive Vice President for Health Affairs Eric N. Monday, Executive Vice President for Finance and Administration Administrative Officers Mitchell S. Barnhart, Director of Athletics Lisa Cassis, Vice President for Research Thomas W. Harris, Vice President for University Relations Judy “J.J.” Jackson, Vice President for Institutional Diversity Robert C. Mock, Vice President for Student Affairs D. Michael Richey, Vice President for Development Bill Swinford, Chief of Staff William E. Thro, General Counsel
Academic Officers Nancy M. Cox, Dean College of Agriculture Mark Kornbluh, Dean College of Arts and Sciences David Blackwell, Dean Gatton College of Business and Economics Dan O’Hair, Dean College of Communication and Information Sharon P. Turner, Dean College of Dentistry Ann Dickson, Interim Dean College of Design Mary John O’Hair, Dean College of Education John Y. Walz, Dean College of Engineering Michael S. Tick, Dean College of Fine Arts Susan Carvalho, Interim Dean Graduate School Scott Lephart, Dean College of Health Sciences David A. Brennen, Dean College of Law Terry Birdwhistell, Dean Libraries Frederick C. deBeer, Dean College of Medicine Janie Heath, Dean College of Nursing Kelly M. Smith, Interim Dean College of Pharmacy Wayne T. Saunderson, Interim Dean College of Public Health James P. “Ike” Adams, Jr., Dean College of Social Work
An Equal Opportunity University
Office of the Treasurer301 Peterson Service Building
Lexington, KY, 40506-0005
www.uky.edu/EVPFA/Controller
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THIS PAGE INTENTIONALLY
LEFT BLANK_____________________________
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A P P E N D IX C
S UM M A RY O F TH E TRUS T A GRE E M E N T
The following is a summary of certain provisions of the Trust Agreement dated as of November1, 2005, between the University and U.S. Bank National Association, as Trustee, as supplemented andamended. This summary is not to be regarded as a complete statement of the Trust Agreement to whichreference is made for a complete statement of the actual terms thereof. Copies of the Trust Agreement areon file with the Trustee.
D efined Terms
The terms defined below are among those used in the Official Statement and in this summary ofthe Trust Agreement. Except where otherwise indicated or provided, words in the singular numberinclude the plural as well as the singular number and vice versa.
“Act” means Sections 162.340 to 162.380 of the Kentucky Revised Statutes, Chapter 56 of theKentucky Revised Statutes and Sections 58.010 to 58.140 of the Kentucky Revised Statutes as the samemay be amended, modified, revised, supplemented, or superseded from time to time.
“Additional Obligation Instruments” means agreements providing for the repayment of moneythat the University may, from time to time, be authorized to enter into under the laws of theCommonwealth. The definition of Additional Obligation Instruments does not include “Bond” or“Bonds,” “Note” or “Notes,” Financing Agreements or SPBC Leases.
“ALCo” means the Kentucky Asset/Liability Commission and any successor thereto.
“Authenticating Agent” means the Trustee and the Registrar for the series of Obligations and anybank, trust company or other Person designated as an Authenticating Agent for such series of Obligationsby or in accordance with the Trust Agreement.
“Beneficial Owner” means, with respect to the Obligations, a Person owning a BeneficialOwnership Interest therein, as evidenced to the satisfaction of the Trustee.
“Beneficial Ownership Interest” means the beneficial right to receive payments and notices withrespect to a series of Obligations which are held by a Depository under a Book Entry System.
“Board” means the Board of Trustees of the University, or if there shall be no such Board ofTrustees, such Person or body which, pursuant to law or the organizational documents of the University,is vested with the power to direct the management and policies of the University, and shall include anycommittee empowered to act on behalf of such board or body.
“Bond” or “Bonds” means any bond, or all of the bonds, or an issue or series of bonds, as the casemay be, as so identified in the certificate of the Fiscal Officer, of the University issued pursuant to the2005 General Bond Resolution, a Series Resolution and the Trust Agreement. The definition of Bond andBonds does not include “Note” or “Notes,” Financing Agreements, SPBC Leases or AdditionalObligation Instruments.
“Bond Counsel” means an attorney or firm of attorneys of nationally recognized standing on thesubject of municipal bonds selected by the University or its counsel and acceptable to the Trustee.
“Book Entry Form” or “Book Entry System” means, with respect to the Obligations, a form orsystem, as applicable, under which (a) the Beneficial Ownership Interests may be transferred only througha book entry and (b) physical Obligation certificates in fully registered form are registered only in the
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name of a Depository or its nominee as Holder, with the physical Obligation certificates “immobilized” inthe custody of the Depository. The Book Entry System maintained by and the responsibility of theDepository and not maintained by or the responsibility of the University or the Trustee is the record thatidentifies, and records the transfer of the interests of, the owners of book entry interests in theObligations.
“Business Day” means a day of the year, other than a Saturday or Sunday, on which bankslocated in the city in which the principal corporate trust office of the Trustee is located are not required orauthorized to remain closed or a day on which The New York Stock Exchange is not closed.
“Certificate of Award” means, with respect to any series of Obligations, the Certificate of Awardfor such series, if any, authorized in the applicable Series Resolution or the contract of purchase for suchseries of Obligations.
“Commonwealth” means the Commonwealth of Kentucky.
“Costs of University Facilities” means the costs of or related to University Facilities, and thefinancing thereof, for the payment of which Obligations may be issued under the Act.
“Credit Support Instrument” means an irrevocable letter of credit, line of credit, standby bondpurchase agreement, insurance policy, guaranty or surety bond or similar instrument providing for thepayment of or guaranteeing the payment of principal or purchase price of and interest on Obligationswhen due, either to which the University is a party or which is provided at the request of the University.
“Credit Support Provider” means the provider of a Credit Support Instrument.
“Debt Service Charges” means, generally, for any applicable time period, (i) the principal(including any Mandatory Sinking Fund Requirements), interest and redemption premium, if any,required to be paid by the University on Obligations pursuant to any Series Resolution, less anycapitalized interest for such time period and accrued interest on deposit in the Debt Service PaymentAccount; (ii) any amounts due to a Credit Support Provider to the extent as set forth in a Credit SupportInstrument; and (iii) any amounts due to a Hedge Provider to the extent as set forth in an Interest RateHedge Agreement.
“Debt Service Fund” means the Debt Service Fund authorized and created pursuant to the TrustAgreement.
“Debt Service Payment Account” means the Debt Service Payment Account within the DebtService Fund authorized and created pursuant to the Trust Agreement.
“Debt Service Reserve Account” means the Debt Service Reserve Account authorized andcreated pursuant to the Trust Agreement.
“Depository” means any securities depository that is a clearing agency under federal lawoperating and maintaining, together with its participants a Book Entry System to record beneficialownership of a series of Obligations, and to effect transfers of such Obligations, in Book Entry Form, andincludes the Depository Trust Company (a limited purpose trust company), New York, New York.
“Direct Participant” means a Participant as defined in the Letter of Representations.
“Eligible Investments” means any investment authorized by Section 42.500 and 56.520(5) of theKentucky Revised Statutes, as the same may be amended, modified, revised, supplemented, or supersededfrom time to time.
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“Extraordinary Services” and “Extraordinary Expenses” means all services rendered and allreasonable expenses (including counsel fees) properly incurred by the Trustee under the Trust Agreement,other than Ordinary Services and Ordinary Expenses. Extraordinary Services and ExtraordinaryExpenses shall specifically include services rendered or expenses incurred by the Trustee in connectionwith, or in contemplation of, an Event of Default.
“Event of Default” means an Event of Default as defined in the Trust Agreement.
“Financial Statements” means the University’s Annual Financial Statements.
“Financing Agreement” means a “Financing Agreement” as defined in Chapter 56 of theKentucky Revised Statutes between the University and ALCo or the applicable state agency as thenprovided by law. The definition of Financing Agreement does not include “Bond” or “Bonds,” “Note” or“Notes” or Additional Obligation Instruments, but may also mean an SPBC Lease.
“Fiscal Officer” means either the Treasurer of the University or such other person designated bythe Chairman of the Board to act as Fiscal Officer for purposes of the Trust Agreement.
“Fiscal Year” means a period of twelve consecutive months constituting the fiscal year ofUniversity commencing on the first day of July of any year and ending on the last day of June of the nextsucceeding calendar year, both inclusive, or such other consecutive twelve month period as hereafter maybe established from time to time for budgeting and accounting purposes of the University by the Board tobe evidenced, for purposes of the Financing Agreement, by a certificate of a Fiscal Officer filed with theTrustee.
“Fitch” means Fitch Ratings.
“General Receipts” means, as reported in the Financial Statements (having the designations, tothe extent not otherwise defined in the Financing Agreement, set forth in the Financial Statements or suchsuccessor designations that may hereafter be used in Financial Statements):
(a) certain operating and non-operating revenues of the University, being (i) StudentRegistration Fees, (ii) nongovernmental grants and contracts, (iii) recoveries of facilities andadministrative costs, (iv) sales and services, (v) Hospital Revenues, (vi) Housing and DiningRevenues, (vii) auxiliary enterprises – other auxiliaries, (viii) auxiliary enterprises – athletics, (ix)other operating revenues, (x) state appropriations (for general operations), (xi) gifts and grants,(xii) investment income, (xiii) other nonoperating revenues, and (xiv) other;
(b) but excluding (i) any receipts described in clause (a) which are contracts, grants,gifts, donations or pledges and receipts therefrom which, under restrictions imposed in suchcontracts, grants, gifts, donations or pledges, or, which as a condition of the receipt thereof or ofamounts payable thereunder are not available for payment of Debt Service Charges, (ii) federalgrants and contracts, (iii) state and local grants and contracts, (iv) federal appropriations, (v)county appropriations, (vi) professional clinical service fees, (vii) capital appropriations, (viii)capital grants and gifts, and (ix) additions to permanent endowments, including researchchallenge trust funds;
provided, however, that General Receipts may
(c) include any other receipts that may be designated as General Receipts from timeto time by a resolution of the Board delivered to the Trustee; and
(d) exclude any receipts not pledged under the Trust Agreement, which may bedesignated from time to time by a resolution of the Board delivered to the Trustee;
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(e) exclude any receipts pledged under the Trust Agreement, which may bedesignated from time to time by a resolution of the Board delivered to the Trustee and eachRating Service then rating any Obligations, but only if each such Rating Service confirms inwriting to the University that the exclusion of any such receipt would not cause a reduction orwithdrawal of the then current rating on any Outstanding Obligations.
“Government Bonds” means (a) direct obligations of the United States of America for thepayment of which the full faith and credit of the United States of America is pledged, (b) obligationsissued by a Person controlled or supervised by and acting as an instrumentality of the United States ofAmerica, the payment of the principal of, premium, if any, and interest on which is fully guaranteed as afull faith and credit obligation of the United States of America (including any securities described in (a)or (b) issued or held in book-entry form on the books of the Department of Treasury of the United Statesof America or Federal Reserve Bank), and (c) securities which represent an interest in the obligationsdescribed in (a) and (b) above.
“Hedge Provider” means the provider of an Interest Rate Hedge Agreement.
“Holder” means any Person in whose name a registered Obligation is registered; provided thatALCo, or its assignee, shall be the Holder of any Financing Agreement and SPBC, or its assignee, shallbe the Holder of any SPBC Lease.
“Hospital Revenues” means operating revenues having the designation “hospital services” in theFinancial Statements or any successor designation or designations for such receipts that may hereafter beused in Financial Statements.
“Housing and Dining Bonds” means Obligations, the proceeds of which will be used to pay Costsof University Facilities which constitute Housing and Dining Facilities.
“Housing and Dining Facilities” means Housing and Dining Facilities, as defined in the PriorHousing Indenture.
“Housing and Dining Revenues” means operating revenues (auxiliary enterprises) having thedesignation “housing and dining” in the Financial Statements or any successor designation ordesignations for such receipts that may hereafter be used in Financial Statements.
“Indirect Participant” means a Person utilizing the Book Entry System of the Depository by,directly or indirectly, clearing through or maintaining a custodial relationship with a Direct Participant.
“Interest Payment Dates” means the dates specified in the applicable Series Resolution orCertificate of Award on which interest on the Obligations or any series of Obligations is to be paid.
“Interest Rate Hedge Agreement” means an interest rate swap, an interest rate cap or other sucharrangement obtained, either directly by the University (or the Trustee on behalf of the University) orthrough ALCo, with the goal of lowering the effective interest rate to the University on Obligations orhedging the exposure of the University with respect to its obligations on the Obligations againstfluctuations in prevailing interest rates.
“Letter of Representations” means the Blanket Letter of Representations from the University tothe Depository.
“Mandatory Sinking Fund Requirements” means amounts required by any Series Resolution orthe Certificate of Award to be deposited to the Debt Service Payment Account in any fiscal year for thepurpose of retiring principal maturities of Obligations which by the terms of such Obligations are due andpayable, if not called for prior redemption, in any subsequent fiscal year.
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“Maximum Annual Debt Service” means the highest amount of (i) Debt Service Charges plus (ii)the principal of and interest on all Prior Obligations that are outstanding under the terms of the Prior BasicResolution or the Prior Housing Indenture, for the current or any future Fiscal Year.
“Moody’s” means Moody’s Investors Service, Inc., a Delaware corporation, and its successorsand assigns.
“Notes” or “Note” means any note or all of the notes, or an issue of notes, as the case may be, asso identified in the certificate of the Fiscal Officer issued by the University in anticipation of the issuanceof Obligations or receipt of grants or appropriations to pay Costs of University Facilities, or to pay costsof refunding or retirement of Notes previously issued pursuant to the Act, the 2005 General BondResolution, a Series Resolution and the Trust Agreement. The definition of Note and Notes does notinclude “Bond” or “Bonds,” Financing Agreements, SPBC Leases or Additional Obligation Instruments.
“Obligations” means Bonds, Notes, Financing Agreements, SPBC Leases and AdditionalObligation Instruments.
“Ordinary Services” and “Ordinary Expenses” means those services normally rendered and thoseexpenses (including counsel fees) normally incurred by a trustee under instruments similar to the TrustAgreement.
“Original Purchaser” means, as to any Obligations, the Person or Persons expressly named in theapplicable Series Resolution or the Certificate of Award as the original purchaser of those Obligationsfrom the University.
“Outstanding” means, as of any date, Notes and Bonds which have been authenticated, and withrespect to all Obligations, have been delivered, or are then being delivered, by the Trustee or theUniversity under the Trust Agreement except:
(a) Obligations surrendered for exchange or transfer or canceled because of paymentor redemption at or prior to such date;
(b) Obligations for the payment, redemption or purchase for cancellation of whichsufficient moneys have been deposited prior to such date with the Trustee or Paying Agents(whether upon or prior to the maturity or redemption date of any such Obligations), or which aredeemed to have been paid and discharged pursuant to the provisions of the Trust Agreement;provided that if such Obligations are to be redeemed prior to the maturity thereof, notice of suchredemption shall have been given or arrangements satisfactory to the Trustee shall have beenmade there for, or waiver of such notice satisfactory in form to the Trustee shall have been filedwith the Trustee, and provided, further, that if such Obligations are to be purchased forcancellation, a firm offer for sale stating the price has been received and accepted; and
(c) Lost, stolen, mutilated or destroyed Obligations in lieu of which others have beenauthenticated, if applicable, (or payment, when due, of which is made without replacement) underthe Trust Agreement.
“Paying Agents” means any banks or trust companies designated as the paying agencies or placesof payment for Obligations by or pursuant to the applicable Series Resolution, and their successorsdesignated pursuant to the Trust Agreement, and shall also mean the Trustee when so designated for suchpurpose.
“Person” means an individual, a corporation, a partnership, an association, a joint stock company,a joint venture, a trust, an unincorporated organization, or a government or any agency or politicalsubdivision thereof.
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“Predecessor Obligation” of any particular Obligation means every previous Obligationevidencing all or a portion of the same debt as that evidenced by the particular Obligation. For thepurposes of this definition, any Bond or Note authenticated and delivered under the Trust Agreement inlieu of a lost, stolen or destroyed Bond or Note shall, except as otherwise provided in the TrustAgreement, be deemed to evidence the same debt as the lost, stolen or destroyed Bond or Note.
“Prior Basic Resolution” means the resolution adopted by the Board on September 20, 1960, thathas provided for the issuance of Consolidated Educational Buildings Revenue Bonds of the University.
“Prior Financing Documents” means, collectively, the Prior Basic Resolution and the PriorHousing Indenture.
“Prior Funds” means all funds and accounts created by the Prior Financing Documents that arepledged as security and a source of payment of bonds and notes issued thereunder.
“Prior Housing Indenture” the Trust Indenture and Supplemental Trust Indenture dated as of June1, 1965 (and all supplemental indentures related thereto) between the University and Farmers’ Bank &Capital Trust Company that, has provided for the issuance of Housing and Dining Bonds.
“Prior Obligations” means any notes or bonds that are outstanding under the Prior FinancingDocuments.
“Prior Pledged Funds” means, collectively, all funds and accounts created under the PriorFinancing Documents.
“Prior Pledged Revenues” means amounts required to be deposited in the “Revenue Fund”created by the Prior Basic Resolution and in the “System Revenue Fund” created by the Prior HousingIndenture.
“Project Fund” means the Project Fund created pursuant to the Trust Agreement.
“Purchase Price” means, as to any series of Obligations, the amount provided for in the SeriesResolution and the Certificate of Award authorized thereby, plus accrued interest, if any, on the aggregateprincipal amount of those Obligations from their date to the date of their delivery to the OriginalPurchaser and payment therefor.
“Rating Service” means Fitch, Moody’s, S&P or any other nationally recognized rating service.
“Redemption and Purchase Account” means the Redemption and Purchase Account authorizedand created pursuant to the Trust Agreement.
“Register” means the books kept and maintained by the Registrar for the registration and transferof Obligations pursuant to the Trust Agreement.
“Registrar” means, with respect to a series of Obligations, the keeper of the Register for thoseObligations, which shall be the Trustee except as may be otherwise provided by or pursuant to the SeriesResolution for those Obligations, each of which shall be a transfer agent registered in accordance withSection 17(A)(c) of the Securities Exchange Act of 1934.
“Regular Record Date” means, with respect to any Obligation and unless otherwise provided inthe Series Resolution authorizing the particular series of Obligations, the fifteenth day of the calendarmonth next preceding an Interest Payment Date applicable to that Obligation.
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“Reimbursement Agreement” means, with respect to a series of Obligations, any agreement oragreements between one or more Credit Support Providers and the University under or pursuant to whicha Credit Support Instrument for such series of Obligations is issued or provided and which sets forth therespective obligations of the University and of the Credit Support Provider.
“Remarketing Agent” means any entity which acts as the remarketing agent with respect to aseries of Obligations.
“Revenue Fund” means the Revenue Fund authorized and created pursuant to the TrustAgreement.
“S&P” means Standard & Poor’s Rating Services, a Division of The McGraw Hill Companies,and its successors and assigns.
“Series Resolution” means a Resolution of the Board authorizing one or more series ofObligations and the execution and delivery of a Supplemental Trust Agreement, all in accordance with the2005 General Bond Resolution and the Trust Agreement.
“SPBC” means the State Property and Buildings Commission of the Commonwealth and anysuccessor thereto.
“SPBC Lease” means a lease between the University and SPBC or the applicable state agency asthen provided by law. The definition of SPBC Lease does not include “Bond” or “Bonds,” “Note” or“Notes” or Additional Obligation Instruments, but may also mean a Financing Agreement.
“Special Funds” means the Debt Service Fund and accounts therein and any other funds oraccounts permitted by, established under, or identified in the Trust Agreement or a Series Resolution anddesignated as Special Funds. The Revenue Fund shall not be a Special Fund.
“Student Registration Fees” means operating revenues having the designation “student tuition andfees” in the Financial Statements or any successor designation or designations for such receipts that mayhereafter be used in Financial Statements.
“Subordinated Indebtedness” means obligations which, with respect to any issue thereof, aresecured by a pledge of the General Receipts which is subordinate to that of the holders of Obligations andwhich are evidenced by instruments, or issued under an indenture or other document, containingprovisions for the subordination of such obligations.
“Supplemental Trust Agreement” means any one or more of Supplemental Trust Agreementsentered into by the parties pursuant to the Trust Agreement and a Series Resolution.
“Tender Agent” means any entity which acts as a tender agent for a series of Obligations.
“Trust Agreement” means the Trust Agreement, dated as of November 1, 2005, between theUniversity and the Trustee, as the same may be duly amended, modified or supplemented in accordancewith its terms.
“Trustee” means the Trustee at the time serving under the Trust Agreement, originally U.S. BankNational Association and any successor Trustee as determined or designated under or pursuant to theTrust Agreement.
“2005 General Bond Resolution” means the resolution of the Board adopted on September 20,2005, authorizing the execution and delivery of the Trust Agreement.
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“University” means the University of Kentucky, a public body corporate, and an educationalinstitution and agency of the Commonwealth of Kentucky, and every part and component thereof as fromtime to time existing, and when the context requires, includes the Board.
“University Facilities” means buildings and appurtenances to be used in connection with theUniversity for educational purposes, including, but not limited to any Authorized Project, any Building,any Building project and any Public project, as those terms are defined in the Act, and further includesany one, part of, or any combination of such facilities, and further includes site improvements, utilities,machinery, furnishings and any separate or connected buildings, structures, improvements, sites, openspace and green space areas, utilities or equipment to be used in, or in connection with the operation ormaintenance of, or supplementing or otherwise related to the services or facilities to be provided by suchfacilities.
Any reference in the Financing Agreement to the University, the Board, or to any officers or toother public boards, commissions, departments, institutions, agencies, bodies, entities or officers, shallinclude those which succeed to their functions, duties or responsibilities pursuant to or by operation oflaw or who are lawfully performing their functions. Any reference to a section or provision of theKentucky Revised Statutes or to the laws of Kentucky shall include such section or provision and suchlaws as from time to time amended, modified, revised, supplemented, or superseded, provided that nosuch amendment, modification, revision, supplementation, or super session shall alter the obligation topay the Debt Service Charges in the amount and manner, at the times, and from the sources provided inthis Resolution, the applicable Series Resolution, and the Trust Agreement, except as otherwise permittedin the Trust Agreement.
D ebtS ervice Fu nd and O therS pecialFu nds
The Trustee will hold and administer the Debt Service Fund and any other Special Fund createdunder the Trust Agreement, together with the accounts contained therein, upon the terms and conditions,including, without limitation, the terms and conditions set forth in the Trust Agreement and the applicableSeries Resolution and/or Supplemental Trust Agreement for the investment of moneys deposited in suchFunds, set forth in the applicable Series Resolution and the Trust Agreement.
There will be maintained in the Debt Service Fund the following Accounts: the Debt ServicePayment Account, the Debt Service Reserve Account and the Redemption and Purchase Account. TheTrustee will maintain a separate subaccount within the Debt Service Payment Account for each series ofObligations and each separate subaccount will secure only the particular series of Obligations to which itis related. (Section 4.01)
Use of D ebtS ervice P aymentA ccou nt;Intercept
The Debt Service Account is pledged to and will be used solely for the payment of Debt ServiceCharges as they fall due. Payments sufficient in an amount to pay the Debt Service Charges as theybecome due will be paid by the University directly to the Trustee, and deposited in the Debt ServicePayment Account to the extent moneys in the Debt Service Payment Account are not otherwise availabletherefore. Upon the occurrence and during the continuation of an Event of Default described in the TrustAgreement with respect to a specific series of Obligations, if a subaccount in the Debt Service ReserveAccount has been created to secure such series of Obligations, moneys in the applicable subaccount of theDebt Service Reserve Account may be transferred by the Trustee to the Debt Service Payment Account tobe used to pay Debt Service Charges with respect to such series of Obligations pursuant to the TrustAgreement. Except as provided in the Trust Agreement, moneys in the Debt Service Payment Accountshall be used solely for the payment of Debt Service Charges on the Obligations, for the redemption ofObligations prior to maturity, for the payment of any amounts due to a Credit Support Provider to theextent as set forth in a Credit Support Instrument, for the payment of any amounts due to a Hedge
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Provider to the extent as set forth in an Interest Rate Hedge Agreement and as otherwise provided in theTrust Agreement and the 2005 General Bond Resolution.
If, ten days prior to any date that the payment of Debt Service Charges are due, sufficient fundsare not on deposit in the Debt Service Payment Account to enable the Trustee to pay such Debt ServiceCharges, or if the Trustee shall have transferred funds from a Debt Service Reserve Account to the DebtService Payment Account to forestall a default in the payment of Debt Service Charges, then in each suchinstance the Trustee shall immediately notify the Treasurer of the University and the Secretary of theFinance and Administration Cabinet of the Commonwealth in writing of such event and request thatamounts be remitted to the Trustee pursuant to the then applicable provisions of Section 164A.608 of theKentucky Revised Statutes to cure such deficiency or to restore the amount transferred from the DebtService Reserve Account. (Section 4.02)
D ebtS ervice Reserve A ccou nt
The Trustee will hold and administer a Debt Service Reserve Account to be used, solely for thepayment of Debt Service Charges with respect to any series of Obligations for which a reserve fund hasbeen mandated pursuant to the Series Resolution which authorized the issuance of such series ofObligations. A separate subaccount shall be created in the Supplemental Debt Service Reserve Accountfor each series of Obligations for which a reserve fund has been mandated by the Series Resolution whichauthorized such series of Obligations and each separate subaccount shall secure only the particular seriesof Obligations to which it is related.
If, on the date upon which Debt Service Charges on any Obligations which are secured by a DebtService Reserve Account or subaccount held by the Trustee fall due, the subaccount within the DebtService Payment Account related to such Obligations is insufficient to meet such Debt Service Charges tobe paid therefrom on such date, the Trustee will immediately transfer from the appropriate subaccount ofthe Debt Service Reserve Account an amount sufficient to make up such deficiency in the subaccount ofthe Debt Service Payment Account. Except as may be provided in the applicable Series Resolution orSupplemental Trust Agreement, if on the day upon which amounts are due to a Hedge Provider under anInterest Rate Hedge Agreement or are due to a Credit Support Provider in reimbursement for amountsprovided under a Credit Support Instrument, the amount in the subaccount within the Debt ServicePayment Account related to such Debt Service Charges (other than from any amounts provided under anInterest Rate Hedge Agreement or Credit Support Instrument) is insufficient to pay such amounts to suchHedge Provider or Credit Support Provider on that date, the Trustee, without necessity for any furtherorder of the University or officer thereof, will make available for such reimbursement any amounts in therelated subaccount of the Debt Service Reserve Account for the series of Obligations to which the InterestRate Hedge Agreement or Credit Support Instrument applies that are necessary to make up thatinsufficiency. The amount so transferred will be applied only to the payment of Debt Service Charges onthe Obligations to which that Debt Service Reserve Account pertains or for the payment of any amountsdue to a Hedge Provider under an Interest Rate Hedge Agreement or to a Credit Support Provider asreimbursement of draws under a Credit Support Instrument in connection with the Obligations to whichthat Debt Service Reserve Account pertains.
Subject to the foregoing, any amount in a subaccount of the Debt Service Reserve Account inexcess of the amount required to be maintained therein pursuant to the Series Resolution which createdsuch subaccount or the Certificate of Award (the “Required Amount”) will be transferred to the DebtService Payment Account or to the Redemption and Purchase Account for the purposes thereof, if and tothe extent ordered by the Fiscal Officer. Such excess will be determined by calculating the RequiredAmount with reference to Outstanding Obligations of the particular series only, excluding anyObligations for the redemption or purchase of which such excess is being transferred to the Redemptionand Purchase Account.
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Within one hundred eighty (180) days after the end of each Fiscal Year, the University shall, fromGeneral Receipts, restore to the various subaccounts within the Debt Service Reserve Account anyamounts transferred therefrom or any decrease in value determined pursuant to Section 4.14 of the TrustAgreement in such Fiscal Year so that the amounts in such subaccounts are at least equal to the variousRequired Amounts. (Section 4.03)
Redemption and P u rchase A ccou nt
There will be deposited in the Redemption and Purchase Account that portion (if any) of theproceeds of refunding Obligations, as provided in the Series Resolution authorizing their issuance,allocated to the payment of the principal, interest and redemption premium, if any, or purchase price ofthe Obligations to be refunded, funded or retired through the issuance of such refunding Obligations;amounts to be transferred thereto from the Debt Service Reserve Account by order of the Fiscal Officerpursuant to Section 4.03 of the Trust Agreement; and any other amounts made available by the Universityfor the purposes of the Redemption and Purchase Account. Amounts for the redemption of Obligations tobe provided pursuant to the mandatory sinking fund requirements of the Series Resolution authorizingsuch Obligations will not be deposited to the credit of the Redemption and Purchase Account, but shall bedeposited to the credit of the Debt Service Payment Account.
Any amounts in the Redemption and Purchase Account may be committed, by Series Resolutionor other action by the Board, for the retirement of and for Debt Service Charges on specified Obligationsand, so long as so committed, will be used solely for such purposes whether directly or through transfer tothe Debt Service Fund. Subject to the foregoing provisions of the Trust Agreement, the Fiscal Officermay cause moneys in the Redemption and Purchase Account to be used to purchase any Obligations forcancellation and to redeem any Obligations in accordance with the redemption provisions of theapplicable Series Resolution. From moneys in the Redemption and Purchase Account, the Trustee willtransmit or otherwise disburse such amounts at such times as required for the redemption or purchase forcancellation of Obligations, and Debt Service Charges, in accordance with the applicable SeriesResolution, or other action by the Board or order of the Fiscal Officer not inconsistent therewith. Anyamounts in the Redemption and Purchase Account not required for the purposes thereof pursuant to acommitment theretofore made, may be transferred to the Debt Service Payment Account or the DebtService Reserve Account upon order of the Fiscal Officer. (Section 4.04)
P rojectFu nd
Upon the issuance and delivery of Obligations, the proceeds of which will be used to pay Costs ofUniversity Facilities, the Treasury of the Commonwealth, will hold and administer a fund designated the“University of Kentucky Project Fund” with an additional series identification for each series ofObligations.
Amounts in a Project Fund will be disbursed therefrom by the Treasurer of the Commonwealthaccording to such inspection, audit, and disbursement procedures as may from time to time be providedby law, for the purpose of paying Costs of University Facilities as identified in the related SeriesResolution or Supplemental Trust Agreement and to reimburse the University for any payments whichmay have been made from other available resources in anticipation of the issuance of such Obligations.
Any balance remaining in a Project Fund after the final payment of all Costs of UniversityFacilities for which such Project Fund was created, will be deposited in the Debt Service Fund and (i)credited to the related subaccount, if any, within the Debt Service Reserve Account if and to the extentthat such subaccount of the Debt Service Reserve Account contains less than the Required Amount,and/or (ii) either applied as a credit against the next deposit required to be made into the Debt ServicePayment Fund, or used to purchase Obligations in the open market at a purchase price not exceeding parplus accrued interest, as may be directed by the Fiscal Officer; provided that, if proceedings are then
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pending or imminently contemplated for incurring additional Costs of University Facilities which are orwill be paid from the proceeds of Obligations, any such unexpended balance may be taken into account indetermining the amount of Obligations to be authorized for such purpose, or may otherwise be applied tosuch Costs of University Facilities, in which event such unexpended balance may be transferred to aProject Fund created for such purpose.
If so provided in any Series Resolution or a Supplemental Trust Agreement, to the extentpermitted by law, a Project Fund may be held and disbursed by the Trustee. Furthermore, if theObligations with respect to which a Project Fund is created are Financing Agreements, SPBC Leases orAdditional Obligation Instruments, a Project Fund may be created in accordance with the requirements ofsuch Financing Agreements, SPBC Leases or Additional Obligation Instruments. (Section 4.05)
GeneralC ovenant
So long as any Obligations are Outstanding pursuant to the Trust Agreement, the Universitycovenants and agrees: (i) to fix, make, adjust and collect such fees, rates, rentals, charges and other itemsof General Receipts so that there shall inure to the University General Receipts, in view of other revenuesand resources available to the University, sufficient: to pay Debt Service Charges then due or to becomedue in the current Fiscal Year; to pay any other costs and expenses payable under the Trust Agreement;and to pay all other costs and expenses necessary for the proper maintenance and successful andcontinuous operation of the University; and (ii) that it will include in its budget for each Fiscal Year theamount required to be paid to the Debt Service Fund established under Section 4.02 of the TrustAgreement, during such Fiscal Year. (Section 4.12)
Investmentof D ebtS ervice Fu nd and P rojectFu nd
Except as provided in the Trust Agreement, moneys in the Debt Service Fund and the ProjectFund shall be invested and reinvested by the Trustee (or the Fiscal Officer, as applicable) in EligibleInvestments at the oral or written direction of the University, but if oral, confirmed promptly in writing.Investment of moneys in the Debt Service Fund shall mature or be redeemable at the times and in theamounts necessary to provide moneys to pay Debt Service Charges as they become due at stated maturity,by redemption or pursuant to any mandatory sinking fund requirements. Each investment of moneys inthe Debt Service Fund and the Project Fund will mature or be redeemable without penalty at such time asmay be necessary to make payments when necessary from such fund. In the absence of any writtendirection from the Fiscal Officer, the Trustee will invest all funds in sweep accounts, money-market fundsand similar short-term investments, provided that all such investments shall constitute EligibleInvestments. The Trustee may trade with itself or its affiliates in the purchase and sale of securities forsuch investments.
Subject to any directions from the University with respect thereto, the Trustee may sell at the bestprice reasonably obtainable Project Fund investments and reinvest the proceeds therefrom in EligibleInvestments maturing or redeemable as aforesaid. Any of those investments may be purchased from orsold to the Trustee, the Registrar, an Authenticating Agent, a Paying Agent, or any bank, trust company orsavings and loan association affiliated with any of the foregoing. The Trustee will sell or redeeminvestments credited to the Debt Service Fund to produce sufficient moneys applicable under the TrustAgreement to and at the times required for the purposes of paying Debt Service Charges when due asaforesaid, and shall do so without necessity for any order on behalf of the University and withoutrestriction by reason of any order. An investment made from moneys credited to the Debt Service Fundand the Project Fund will constitute part of that respective fund, and each respective fund will be creditedwith all proceeds of sale and income from investment of moneys credited thereto.
For purposes of qualifying any investment as an Eligible Investment, where such qualification isdependent upon the rating assigned to such investment by a Rating Service, such qualification will be
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determined as of the date of purchase of such investment or deposit thereof with the Trustee, whichever islater. (Section 4.15)
Revenu e Fu nd
So long as any Obligations remain Outstanding, there will be maintained a Revenue Fund, which,to the extent required by law, may be a fund (and accounts) in the Commonwealth’s managementadministrative and reporting system. There will be maintained in the Revenue Fund the followingAccounts: a “Student Registration Fees Account,” a “Hospital Revenues Account” and a “Housing andDining Revenues Account.” The “Revenue Fund” created pursuant to the Prior Bond Resolution willcontinue to be maintained so long as any bonds remain outstanding under the Prior Bond Resolution, suchRevenue Fund will constitute the Student Registration Fees Account of the Revenue Fund until there areno bonds outstanding under the Prior Bond Resolution and all Student Registration Fees will be depositedtherein. The “Revenue Fund” created pursuant to a Master Resolution adopted by the Board on June 25,1986 will continue to be maintained as the Hospital Revenues Account of the Revenue Fund and allHospital Revenues shall be deposited therein. The “System Revenue Fund” created pursuant to the PriorHousing Indenture will continue to be maintained so long as any bonds remain outstanding under thePrior Housing Indenture, such System Revenue Fund will constitute the Housing and Dining RevenuesAccount of the Revenue Fund until there are no bonds outstanding under the Prior Housing Indenture andall Housing and Dining Revenues will be deposited therein. (Section 4.16)
M aintenance of P ledge
The University will not make any pledge or assignment of or create or suffer any lien orencumbrance upon the Debt Service Fund and, except for the existing pledges under the Prior BasicResolution and Prior Housing Indenture, the University will not make any pledge or assignment of orcreate or suffer any lien or encumbrance upon the General Receipts prior to or on a parity with the pledgethereof under the Trust Agreement, except as authorized or permitted under the Trust Agreement. TheUniversity will issue no additional bonds or notes under the Prior Basic Resolution. The University willissue no additional bonds or notes under the Prior Housing Indenture unless, with respect to a series ofHousing and Dining Bonds, (i) such bonds or notes could be issued as Obligations under the TrustAgreement within the limitations set forth in Section 2.01 of the Trust Agreement and (ii) it is provided inthe supplemental indenture authorizing such notes or bonds that on the date no Housing and DiningBonds are outstanding under the Prior Housing Indenture, other than notes or bonds issued in accordancewith Section 4.18 of the Trust Agreement, the lien securing such Housing and Dining Bonds created bythe Prior Housing Indenture will terminate and such Housing and Dining Bonds will continue asObligations under the Trust Agreement on a parity with all other Obligations. (Section 4.18)
E vents of D efau lt
Events of Default under the Trust Agreement include:
(a) Failure to pay any Debt Service Charges when and as the same becomes due andpayable;
(b) Failure to pay the principal of or any premium on any Prior Obligations whenand as the same becomes due and payable, whether at the stated maturity thereof or byredemption or acceleration or pursuant to any mandatory sinking fund requirements;
(c) Failure by the University to perform or observe any other covenant, agreement orcondition on the part of the University contained in the Trust Agreement or in the Obligations,which failure or Event of Default shall have continued for a period of 30 days after written notice,by registered or certified mail, given to the University by the Trustee, specifying the failure or
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Event of Default and requiring the same to be remedied, which notice shall be given by theTrustee upon the written request of the Holders of not less than twenty-five percent in aggregateprincipal amount of the Obligations then Outstanding; provided that the Person or Personsrequesting such notice may agree in writing to a 90-day extension of such period prior to theexpiration of the initial 30-day period; provided further, however, that if the University willproceed to take curative action which, if begun and prosecuted with due diligence, cannot becompleted within a period of 90 days, then such period shall be increased without such writtenextension up to 180 days as will be necessary to enable the University to diligently complete suchcurative action;
(d) The University will (i) admit in writing its inability to pay its debts generally asthey become due, (ii) have an order for relief entered in any case commenced by or against itunder federal bankruptcy laws, as now or hereafter in effect, (iii) commence a proceeding underany federal or state bankruptcy, insolvency, reorganization or similar laws, or have such aproceeding commenced against it and have either an order of insolvency or reorganizationentered against it or have the proceeding remain undismissed and unstayed for 90 days, (iv) makean assignment for the benefit of creditors, or, (v) have a receiver or trustee appointed for it or forthe whole or substantial part of its property. (Section 6.01)
S u pplementalTru stA greements N otRequ iringC onsentof H olders
The University and the Trustee without the consent of, or notice to, any of the Holders, may enterinto indentures supplemental to the Trust Agreement and other instruments evidencing the existence of alien as shall not, in the opinion of the Trustee, be inconsistent with the terms and provisions of the TrustAgreement for any one or more of the following purposes:
(a) To cure any ambiguity, inconsistency or formal defect or omission in the TrustAgreement or in any Supplemental Trust Agreement;
(b) To grant to or confer upon the Trustee for the benefit of the Holders anyadditional rights, remedies, powers or authority that may lawfully be granted to or conferred uponthe Holders or the Trustee;
(c) To subject additional revenues or property to the lien and pledge of the TrustAgreement;
(d) To add to the covenants and agreements of the University contained in the TrustAgreement other covenants and agreements thereafter to be observed for the protection of theHolders, or, if in the judgment of the Trustee such is not to the prejudice of the Trustee or theHolders, to surrender or limit any right, power or authority reserved to or conferred upon theUniversity in the Trust Agreement, including the limitation of rights of redemption so that incertain instances Obligations of different series will be redeemed in some prescribed relationshipto one another;
(e) To evidence any succession to the University and the assumption by suchsuccessor of the covenants and agreements of the University contained in the Trust Agreement orother instrument providing for the operation of the University or University Facilities, and theObligations;
(f) In connection with the issuance of Obligations in accordance with Sections 2.01and 2.02 of the Trust Agreement;
(g) To permit the Trustee to comply with any obligations imposed upon it by law;
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(h) To permit the exchange of Obligations, at the option of the Holder or Holdersthereof, for coupon Obligations of the same series payable to bearer, in an aggregate principalamount not exceeding the unmatured and unredeemed principal amount of the PredecessorObligations, bearing interest at the same rate or rates and maturing on the same date or dates, withcoupons attached representing all unpaid interest due or to become due thereon if, in the opinionof nationally recognized Bond Counsel selected by the University and acceptable to the Trustee,that exchange would not result in the interest on any of the Obligations Outstanding becomingsubject to federal income taxation;
(i) To specify further the duties and responsibilities of, and to define further therelationship among, the Trustee, the Registrar and any Authenticating Agents or Paying Agents;
(j) To achieve compliance of the Trust Agreement with any applicable federal orKentucky laws, including tax laws;
(k) To modify any provisions of the Trust Agreement in order to obtain a CreditSupport Instrument or Interest Rate Hedge Agreement, so long as such modifications affect onlythe Obligations to which such Credit Support Instrument or Interest Rate Hedge Agreementrelate; and
(l) In connection with any other change to the Trust Agreement which, in thejudgment of the Trustee, is not to the material prejudice of the Trustee or the Holders of theObligations.
The provisions of (g) and (j) above will not be deemed to constitute a waiver by the Trustee, theRegistrar, the University or any Holder of any right which it may have in the absence of those provisionsto consent to the application of any change in law to the Trust Agreement or the Obligations. (Section7.01)
S u pplementalTru stA greements Requ iringC onsentof H olders
Exclusive of supplemental indentures referred to in Section 7.01 of the Trust Agreement andsubject to the terms and provisions and limitations contained in this paragraph, and not otherwise, theHolders of a majority in aggregate principal amount of the Obligations then Outstanding shall have theright, from time to time, anything contained in the Trust Agreement to the contrary notwithstanding, toconsent to and approve the execution by the University and the Trustee of such other indenture orindentures supplemental to the Trust Agreement as shall be deemed necessary and desirable by theUniversity for the purpose of modifying, altering, amending, adding to or rescinding, in any particular,any of the terms or provisions contained in the Trust Agreement; provided that nothing in this paragraphor in the Trust Agreement will permit, or be construed as permitting, a Supplemental Trust Agreementproviding for (a)(i) a reduction in the percentage of Obligations the consent of the Holders of which arerequired to consent to such Supplemental Trust Agreement or (ii) a preference or priority of anyObligation or Obligations over any other Obligation or Obligations, without the consent of the Holders ofall Obligations then Outstanding, (b) effect a change in the times, amount or currency of payment of theprincipal of, premium, if any, on or interest on any Obligation or a reduction in the principal amount orredemption price of any Obligation or the rate of interest thereon, without the consent of the Holder ofeach such Obligation so affected or (c) modify the right of the Holders of not less than twenty-fivepercent in aggregate principal amount of the Obligations then Outstanding and in default as to payment ofprincipal, premium or interest to compel the Trustee to declare the principal of all Obligations to be dueand payable, without the consent of the Holders of a majority in aggregate principal amount of theObligations then Outstanding.
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If at any time the University request the Trustee to enter into any such Supplemental TrustAgreement for any of the purposes of Section 7.02 of the Trust Agreement, the Trustee, upon beingsatisfactorily indemnified with respect to expenses, shall cause notice of the proposed execution of suchSupplemental Trust Agreement to be mailed by first class mail, postage prepaid, to all Holders ofObligations then Outstanding at their addresses as they appear on the Registrar at the close of business onthe Business Day immediately preceding that mailing. The Trustee will not, however, be subject to anyliability to any Holder by reason of its failure to mail, or the failure of such Holder to receive, the noticerequired by the Trust Agreement, and any such failure shall not affect the validity of such SupplementalTrust Agreement when consented to and approved as provided in Section 7.02 of Trust Agreement. Suchnotice will briefly set forth the nature of the proposed Supplemental Trust Agreement and will state thatcopies thereof are on file at the principal corporate trust office of the Trustee for inspection by allHolders.
If within such period, not exceeding one year, as prescribed by the University, following themailing of such notice, the Trustee receives an instrument or instruments purporting to be executed by theHolders of a majority in aggregate principal amount of the Obligations then Outstanding, whichinstrument or instruments shall refer to the proposed Supplemental Trust Agreement described in suchnotice and will specifically consent to and approve the execution thereof in substantially the form of thecopy thereof referred to in such notice as on file with the Trustee, thereupon, but not otherwise, theTrustee will execute such Supplemental Trust Agreement in substantially such form; without liability orresponsibility to any Holder of any Obligation, whether or not such Holder will have consented thereto.
Any such consent is binding upon the Holder of the Obligation giving such consent, upon anysubsequent Holder of such Obligation and upon the Holder of any Obligation issued in exchange therefor(whether or not such subsequent Holder thereof has notice thereof), unless such consent is revoked inwriting by the Holder of such Obligation giving such consent or by a subsequent Holder thereof by filingwith the Trustee, prior to the execution by the Trustee of such Supplemental Trust Agreement, suchrevocation and, if such Obligation or Obligations are transferable by delivery, proof that such Obligationsare held by the signer of such revocation in the manner permitted by Section 9.01 of the Trust Agreement.At any time after the Holders of the required percentage of the Obligations shall have filed their consentsto the Supplemental Trust Agreement, the Trustee shall make and file with the University a writtenstatement that the, Holders of such required percentage of the Obligations have filed such consents. Suchwritten statement shall be conclusive evidence that such consents have been so filed.
If the Holders of the required percentage in aggregate principal amount of the Obligations shallhave consented to and approved the execution thereof as provided in the Trust Agreement, no Holder ofany Obligation has any right to object to the execution of such Supplemental Trust Agreement, to objectto any of the terms and provisions contained therein or the operation thereof, or in any manner to questionthe propriety of the execution thereof or to enjoin or restrain the Trustee or the University from executingthe same or from taking any action pursuant to the provisions thereof.
A u thorization to the Tru stee;E ffectof S u pplementalTru stA greements
The Trustee is authorized to join with the University in the execution of any such SupplementalTrust Agreement provided for in the Trust Agreement and to make the further agreements and stipulationswhich may be contained therein. Any Supplemental Trust Agreement executed in accordance with theprovisions of the Trust Agreement will thereafter form a part of the Trust Agreement, all the terms andconditions contained in any such Supplemental Trust Agreement as to any provision authorized to becontained therein will be deemed to be part of the terms and conditions of the Trust Agreement for anyand all purposes, the Trust Agreement will be and be deemed to be modified and amended in accordancetherewith, and the respective rights, duties and obligations under the Trust Agreement of the University,the Trustee, the Registrar, the Authenticating Agents, the Paying Agents and all Holders of Obligationsthen Outstanding will thereafter be determined, exercised and enforced thereunder, subject in all respects
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to such modifications and amendments. Express reference to such executed Supplemental TrustAgreement may be made in the text of any Obligations issued thereafter, if deemed necessary or desirableby the Trustee or the University. There will be no modification, change or amendment to the TrustAgreement or any other document related to the Obligations which affect the rights, duties or obligationsof the Trustee thereunder, without the Trustee’s prior written consent.
O pinion of C ou nsel
The Trustee is entitled to receive, and shall be fully protected in relying upon, the opinion of anycounsel approved by it, who may be counsel for the University, as conclusive evidence that any suchproposed Supplemental Trust Agreement complies with the provisions of the Trust Agreement and that itis proper for the Trustee, under the provisions of the Trust Agreement, to join in the execution of suchSupplemental Trust Agreement. (Section 7.04)
M odification byUnanimou s C onsent
Notwithstanding anything contained elsewhere in the Trust Agreement, the rights and obligationsof the University and of the Holders of the Obligations, and the terms and provisions of the Obligationsand the Trust Agreement or any Supplemental Trust Agreement, may be modified or altered in anyrespect with the consent of the University and the consent of the Holders of all of the Obligations thenOutstanding and the Trustee. (Section 7.05)
Release of Tru stA greement
If the University pays or cause to be paid and discharged, or there shall otherwise by paid to theHolders of the Outstanding Obligations all Debt Service Charges due or to become due thereon andprovision shall also be made for paying all other sums payable under the Trust Agreement, then and inthat event the Trust Agreement (except for Sections 4.02, 4.04, 4.05, 8.02 and 8.03 thereof) will cease,determine and become null and void, and the covenants, agreements, and other obligations of theUniversity under the Trust Agreement are discharged and satisfied, and thereupon the Trustee will releasethe Trust Agreement, including the cancellation and discharge of the lien thereof, and execute and deliverto the University such instruments in writing as required to satisfy and terminate the lien thereof and toenter on the records such satisfaction and discharge and to re-convey to the University the estate createdby the Trust Agreement and such other instruments to evidence such release and discharge as may bereasonably required by the University, and the Trustee and Paying Agents will assign and deliver to theUniversity any property at the time subject to the lien of the Trust Agreement which may then be in theirpossession, except amounts in the Debt Service Fund required to be held by the Trustee and PayingAgents under Section 4.07 of the Trust Agreement or otherwise for the payment of Debt Service Charges.(Section 8.01)
P aymentand D ischarge of O bligations
All the Outstanding Obligations of one or more series will be deemed to have been paid anddischarged within the meaning of the Trust Agreement, including without limitation, Section 8.01 of theTrust Agreement if either (i) the Trustee as paying agent and any Paying Agents are required to hold, inthe Debt Service Payment Account in trust for and irrevocably committed thereto, sufficient moneys or(ii) the Trustee is required to hold, in the Debt Service Fund in trust for and irrevocably committedthereto, investments qualifying as Government Bonds as of the date of the determination required inSection 8.02 of the Trust Agreement which are, in either case, certified by an independent publicaccounting firm of national reputation to be of such maturities and interest payment dates and to bear suchinterest as will, without further investment or reinvestment of either the principal amount thereof or theinterest earnings therefrom (likewise to be held in trust and committed, except as provided in the TrustAgreement), be sufficient together with moneys referred to in clause (i) above, for the payment, at their
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maturity, redemption or due date, as the case may be, of all Debt Service Charges on those Obligations totheir maturity, redemption or due date, as the case may be, or if Event of Default in such payment willhave occurred on such date then to the date of the tender of such payment; provided that if any of suchObligations are to be redeemed prior to the maturity thereof, notice of such redemption will have beenduly given or irrevocable provisions satisfactory to the Trustee have been duly made for the giving ofsuch notice; provided that if the Obligations are to be redeemed prior to the maturity thereof, notice ofsuch redemption shall have been duly given or irrevocable provision satisfactory to the Trustee shall havebeen duly made for the giving of such notice. (Section 8.02)
S u rvivalof C ertain P rovisions
Notwithstanding the foregoing, those provisions of a Series Resolution and the Trust Agreementrelating to the maturity of Obligations, interest payments and dates thereof, optional and mandatoryredemption provisions, credit against Mandatory Sinking Fund Requirements, exchange, transfer andregistration of Obligations, replacement of mutilated, destroyed, lost or stolen Obligations, thesafekeeping and cancellation of Obligations, non-presentment of Obligations, the holding of moneys intrust, repayments to the University from the Special Funds and the rights, remedies and duties of theTrustee and the Registrar in connection with all of the foregoing, shall remain in effect and shall bebinding upon the Trustee, the Registrar, the Authenticating Agent, Paying Agents and the Holdersnotwithstanding the release and discharge of the lien of the Trust Agreement. The provisions of theArticle XIII of the Trust Agreement shall survive the release and discharge of the Trust Agreement.(Section 8.03)
L imitation of Rights
With the exception of rights expressly conferred in the Trust Agreement, nothing expressed ormentioned in or to be implied from the Trust Agreement or the Obligations is intended or shall beconstrued to give to any Person other than the parties to the Trust Agreement, the University, any CreditSupport Provider and the Holders of the Obligations any legal or equitable right, remedy or claim underor in respect to the Trust Agreement or any covenants, conditions and provisions in contained in the TrustAgreement; the Trust Agreement and all of the covenants, conditions and provisions of the TrustAgreement being intended to be and being for the sole and exclusive benefit of the parties hereto, theUniversity, any Credit Support Provider and the Holders of the Obligations as provided in the TrustAgreement. (Section 9.02)
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D-1
A P P E N D IX D
FO RM O F B O N D C O UN S E L O P IN IO N
[Date of Delivery]
University of KentuckyLexington, Kentucky
Re: $107,470,000 University of Kentucky General Receipts Bonds, 2016 Series A and$48,310,000 University of Kentucky General Receipts Bonds, 2016 Taxable Series B
Gentlemen:
We have acted as bond counsel in connection with the issuance by the University of Kentucky, apublic body corporate and educational institution and agency of the Commonwealth of Kentucky (the“University”), of its $107,470,000 General Receipts Bonds, 2016 Series A (the “2016 Series A Bonds”)and $48,310,000 General Receipts Bonds, 2016 Taxable Series B (the “2016 Series B Bonds,” andtogether with the 2016 Series A Bonds, the “Bonds”) pursuant to Sections 162.340 to 162.380 of theKentucky Revised Statutes and Sections 58.010 to 58.140 of the Kentucky Revised Statutes, as amended(the “Act”); the 2005 General Bond Resolution of the Board of Trustees of the University (the “Board”)adopted on September 20, 2005 (the “2005 General Bond Resolution”) authorizing the execution anddelivery of a Trust Agreement dated as of November 1, 2005 (the “Trust Agreement”) between theUniversity and U.S. Bank National Association, as trustee (the “Trustee”); and a Series Resolutionadopted by the University on December 17, 2013 (the “Series Resolution”) authorizing the execution anddelivery of a Tenth Supplemental Trust Agreement, dated as of February 1, 2016 (the “TenthSupplement”) between the University and the Trustee, for the purpose of financing the cost, not otherwiseprovided, of the Project, as described in the Series Resolution. We have examined the law and thetranscript of proceedings pursuant to which the Bonds have been authorized and issued, and such othermatters as we deem necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon the opinion of GeneralCounsel to the University, representations of the University contained in the 2005 General BondResolution, the Trust Agreement, the Series Resolution, the Tenth Supplement and in the transcript ofproceedings and other certifications of public officials furnished to us, without undertaking to verify thesame by independent investigation.
Based on our examination, we are of the opinion, as of the date hereof and under existing law, asfollows:
1. The University is a duly created and validly existing public body corporate andeducational institution and agency of the Commonwealth of Kentucky, with full power to adopt the 2005General Bond Resolution and the Series Resolution, to perform the agreements on its part containedtherein and in the Trust Agreement and the Tenth Supplement and to issue the Bonds.
2. The 2005 General Bond Resolution and the Series Resolution have been duly adopted bythe University and constitute valid and binding obligations of the University enforceable upon theUniversity.
3. The Trust Agreement and the Tenth Supplement have been duly authorized, executed anddelivered by the University and are each valid and binding obligations of the University, enforceable inaccordance with their respective terms.
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4. The Bonds have been duly authorized, executed and delivered by the University andconstitute valid and binding obligations of the University payable solely from the sources providedtherefore in the 2005 General Bond Resolution, the Series Resolution, the Trust Agreement and the TenthSupplement.
5. The Bonds and any additional Obligations, as defined in the Trust Agreement, heretoforeand hereafter issued and outstanding under the terms of the Trust Agreement are and will be payable fromthe General Receipts, as defined in the Trust Agreement, which have been pledged thereunder as providedin the Trust Agreement and the Tenth Supplement.
6. Under the laws, regulations, rulings and judicial decisions in effect as of the date hereof,interest, including original issue discount, on the 2016 Series A Bonds is excludible from gross incomefor Federal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the“Code”). Furthermore, interest on the 2016 Series A Bonds will not be treated as a specific item of taxpreference, under Section 57(a)(5) of the Code, in computing the alternative minimum tax for individualsand corporations. In rendering the opinions in this paragraph, we have assumed continuing compliancewith certain covenants designed to meet the requirements of Section 103 of the Code. We express noother opinion as to the federal tax consequences of purchasing, holding or disposing of the 2016 Series ABonds.
7. The University has not designated the 2016 Series A Bonds as “qualified tax-exemptobligations” pursuant to Section 265 of the Code.
8. Interest on the 2016 Series B Bonds is not excludable from gross income for Federalincome tax purposes.
9. Interest on the Bonds is exempt from income taxation and the Bonds are exempt from advalorem taxation by the Commonwealth and any of its political subdivisions.
It is to be understood that the rights of the owners of the Bonds and the enforceability of theBonds, 2005 General Bond Resolution, the Series Resolution, the Trust Agreement and the TenthSupplement may be subject to bankruptcy, insolvency, reorganization, moratorium and other laws ineffect from time to time affecting creditors’ rights, and to the exercise of judicial discretion in accordancewith general equitable principles.
Very truly yours,DINSMORE & SHOHL LLP
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A P P E N D IX E
B O O K-E N TRY -O N L Y S Y S TE M
The Bonds initially will be issued solely in book-entry form to be held in the book-entry-onlysystem maintained by The Depository Trust Company (“DTC”), New York, New York. So long as suchbook-entry system is used, only DTC will receive or have the right to receive physical delivery of Bondsand, except as otherwise provided herein with respect to tenders by Beneficial Owners of beneficialownership interests, each actual purchaser of each Bond (a “Beneficial Owner”) will not be or beconsidered to be, and will not have any rights as, owner or holder of the Bonds under the TrustAgreement.
The following information about the book-entry-only system applicable to the Bonds has beensupplied by DTC. Neither the University nor the Trustee makes any representations, warranties orguarantees with respect to its accuracy or completeness.
DTC will act as securities depository for the Bonds. The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such othername as may be requested by an authorized representative of DTC. One fully-registered Bond certificatewill be issued for in the aggregate principal amount of the Bonds and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organizedunder the New York Banking Law, a “banking organization” within the meaning of the New YorkBanking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning ofthe New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisionsof Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and moneymarket instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit withDTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and othersecurities transactions in deposited securities, through electronic computerized book-entry transfers andpledges between Direct Participants’ accounts. This eliminates the need for physical movement ofsecurities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers,banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-ownedsubsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding companyfor DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of whichare registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to theDTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,banks, trust companies, and clearing corporations that clear through or maintain a custodial relationshipwith a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard &Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities andExchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants,which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actualpurchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and IndirectParticipants’ records. Beneficial Owners will not receive written confirmation from DTC of theirpurchase. Beneficial Owners are, however, expected to receive written confirmations providing details ofthe transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participantthrough which the Beneficial Owner entered into the transaction. Transfers of ownership interests in theBonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting onbehalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownershipinterests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
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To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC areregistered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may berequested by an authorized representative of DTC. The deposit of Bonds with DTC and their registrationin the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership.DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only theidentity of the Direct Participants to whose accounts such Bonds are credited, which may or may not bethe Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping accountof their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by DirectParticipants to Indirect Participants, and by Direct Participants and Indirect Participants to BeneficialOwners will be governed by arrangements among them, subject to any statutory or regulatoryrequirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certainsteps to augment the transmission to them of notices of significant events with respect to the Bonds, suchas redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example,Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefithas agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners maywish to provide their names and addresses to the Trustee and request that copies of notices be provideddirectly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds are being redeemed,DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue tobe redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect toBonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under itsusual procedures, DTC mails an Omnibus Proxy to the University as soon as possible after the recorddate. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants towhose accounts Bonds are credited on the record date (identified in a listing attached to the OmnibusProxy).
Redemption proceeds, distributions, and interest payments on the Bonds will be made to Cede &.Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practiceis to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detailinformation from the University or the Trustee, on payable date in accordance with their respectiveholdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed bystanding instructions and customary practices, as is the case with Bonds held for the accounts ofcustomers in bearer form or registered in “street name,” and will be the responsibility of such Participantand not of DTC, the Trustee, or the University, subject to any statutory or regulatory requirements as maybe in effect from time to time. Payment of redemption proceeds, distributions, and interest payments toCede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is theresponsibility of the University or the Trustee, disbursement of such payments to Direct Participants willbe the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be theresponsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any timeby giving reasonable notice to the University or the Trustee. Under such circumstances, in the event that asuccessor depository is not obtained, bond certificates are required to be printed and delivered.
The University may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities depository). In that event, bond certificates will be printed and delivered.
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NEITHER THE UNIVERSITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITYOR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANYBENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATIONBOOKS OF THE TRUSTEE AS BEING A HOLDER WITH RESPECT TO: (1) THE BONDS; (2) THEACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT ORINDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT ORINDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECTOF THE PURCHASE PRICE OF TENDERED BONDS OR THE PRINCIPAL OR REDEMPTIONPRICE OF OR INTEREST ON THE BONDS; (4) THE DELIVERY BY ANY DIRECT PARTICIPANTOR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH ISREQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TOHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT INTHE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (6) ANY CONSENT GIVENOR OTHER ACTION TAKEN BY DTC AS HOLDER.
Each Beneficial Owner for whom a Direct Participant or Indirect Participant acquires an interestin the Bonds, as nominee, may desire to make arrangements with such Direct Participant or IndirectParticipant to receive a credit balance in the records of such Direct Participant or Indirect Participant, tohave all notices of redemption, elections to tender Bonds or other communications to or by DTC whichmay affect such Beneficial Owner forwarded in writing by such Direct Participant or Indirect Participant,and to have notification made of all debt service payments.
Beneficial Owners may be charged a sum sufficient to cover any tax, fee, or other governmentalcharge that may be imposed in relation to any transfer or exchange of their interests in the Bonds.
The University cannot and does not give any assurances that DTC, Direct Participants, IndirectParticipants or others will distribute payments of debt service on the Bonds made to DTC or its nomineeas the registered owner, or any redemption or other notices, to the Beneficial Owners, or that they will doso on a timely basis, or that DTC, Direct Participants or Indirect Participants will serve and act in themanner described in this Official Statement.
Certain duties of DTC and procedures to be followed by DTC and the Trustee are set forth inDTC’s operational arrangements (the “Operational Arrangements”). In the event of any conflict betweenthe provisions of the Indenture and the provisions of the Operational Arrangements relating to thepayment of the principal of, premium, if any, and interest on the Bonds and all notices with respect to theBonds, the provisions of the Operational Arrangements shall control. The University has executed ablanket letter of representations enabling the Bonds to be eligible for DTC’s book-entry only system.
The information in this APPENDIX E concerning DTC and DTC’s book-entry system has beenobtained from sources that the University believes to be reliable, but the University takes no responsibilityfor the accuracy thereof.
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A P P E N D IX F
FO RM O F C O N TIN UIN G D IS C L O S URE A GRE E M E N T
C O N TIN UIN G D IS C L O S URE A GRE E M E N T
________________________________________________________________________
Relating to:
$107,470,000 UNIVERSITY OF KENTUCKYGENERAL RECEIPTS BONDS,
2016 SERIES A
AND
$48,310,000 UNIVERSITY OF KENTUCKYGENERAL RECEIPTS BONDS,
2016 TAXABLE SERIES B
_________________________________________________________________________
Dated as of: February 1, 2016
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TABLE OF CONTENTS
Page
RECITALS ................................................................................................................................................ 3
Section 1. Definitions; Scope of this Agreement ...................................................................................... 3
Section 2. Disclosure of Information ........................................................................................................ 5
Section 3. Amendment or Waiver............................................................................................................. 8
Section 4. Miscellaneous .......................................................................................................................... 8
Section 5. Additional Disclosure Obligations........................................................................................... 9
Section 6. Notices ..................................................................................................................................... 9
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THIS CONTINUING DISCLOSURE AGREEMENT (the “Agreement”) is made and enteredinto as of February 1, 2016, between U.S. Bank National Association, as disclosure agent (the“Disclosure Agent”) and the University of Kentucky (the “Issuer”).
RE C ITA L S
WHEREAS, the Issuer has issued or will issue its General Receipts Bonds, 2016 Series A in theoriginal aggregate principal amount of $107,470,000 and General Receipts Bonds, 2016 Taxable Series Bin the original aggregate principal amount of $48,310,000 (collectively, the “Series 2016 Bonds”)pursuant to a Trust Agreement dated as of November 1, 2005 between the Issuer and the DisclosureAgent, as supplemented (the “Trust Agreement”), to (i) finance the costs of the acquisition, construction,installation and equipping of the project identified in H.B. 235 of the General Assembly of theCommonwealth of Kentucky, 2014 Regular Session, as enacted, as “Renovate/Expand University StudentCenter” and (ii) pay the costs of issuing the Series 2016 Bonds; and
WHEREAS, the Series 2016 Bonds have been offered and sold pursuant to a Preliminary OfficialStatement, dated January 13, 2016, and a final Official Statement, dated January 20, 2016 (the “OfferingDocument”); and Hutchinson, Shockey, Erley & Co. and J.P. Morgan Securities, LLC have agreed topurchase certain Series 2016 Bonds based on their competitive bids pursuant to the Issuer’s Notice ofBond Sale as to the Series 2016 Bonds (collectively, the “Original Purchaser”); and
WHEREAS, the Disclosure Agent and the Issuer, wish to provide for the disclosure of certaininformation concerning the Series 2016 Bonds, the Project and other matters on an ongoing basis as setforth herein for the benefit of Bondholders (as hereinafter defined) in accordance with the provisions ofSecurities and Exchange Commission Rule 15c2-12, as amended from time to time (the “Rule”);
NOW, THEREFORE, in consideration of the mutual promises and agreements made herein andin the Trust Agreement, the receipt and sufficiency of which consideration is hereby mutuallyacknowledged, the parties hereto agree as follows:
Section 1. Definitions; Scope of this Agreement
(A) All terms capitalized but not otherwise defined herein shall have the meanings assignedto those terms in the Trust Agreement. Notwithstanding the foregoing, the term “DisclosureAgent” shall originally mean U.S. Bank National Association, having offices in Louisville,Kentucky; any successor disclosure agent shall automatically succeed to the rights and duties ofthe Disclosure Agent hereunder, without any amendment hereto. The following capitalized termsshall have the following meanings:
“Annual Financial Information” shall mean a copy of the annual audited financial informationprepared for the Issuer which shall include, if prepared, a statement of net position, and the relatedstatements of revenues, expenses and changes in net position and of cash flows. All such financialinformation shall be prepared using generally accepted accounting principles, provided, however, that theIssuer may change the accounting principles used for preparation of such financial information so long asthe Issuer includes as information provided to the public, a statement to the effect that differentaccounting principles are being used, stating the reason for such change and how to compare the financialinformation provided by the differing financial accounting principles. Any or all of the items listed abovemay be set forth in other documents, including Offering Documents of debt issues of the Issuer, the Boardor related public entities, which have been transmitted to the MSRB, or may be included by specificreference to documents available to the public on the MSRB’s Internet Website or filed with the SEC.
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“Beneficial Owner” shall mean any person which has the power, directly or indirectly, to vote orconsent with respect to, or to dispose of ownership of, any Series 2016 Bonds (including persons holdingSeries 2016 Bonds through nominees, depositories or other intermediaries).
“Bondholders” shall mean any holder of the Series 2016 Bonds and any Beneficial Ownerthereof.
“Event” shall mean any of the following events with respect to the Series 2016 Bonds:
(i) Principal and interest payment delinquencies;
(ii) Non-payment related defaults, if material;
(iii) In the case of credit enhancement that is provided in connection with the issuance of theSeries 2016 Bonds, unscheduled draws on such credit enhancement reflecting financialdifficulties and substitution of credit providers, or their failure to perform;
(iv) Unscheduled draws on debt service reserves reflecting financial difficulties;
(v) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or finaldeterminations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or othermaterial notices or determinations with respect to the tax-exempt status of the security, orother material events affecting the tax-exempt status of the security;
(vi) Modifications to rights of security holders, if material;
(vii) Bond calls, if material, and tender offers (except for mandatory scheduled redemptionsnot otherwise contingent upon the occurrence of the event);
(viii) Defeasances;
(ix) Release, substitution or sale of property securing repayment of the securities, if material;
(x) Rating changes;
(xi) Bankruptcy, insolvency, receivership or similar event of the Obligated Person.
(xii) The consummation of a merger, consolidation or acquisition involving an ObligatedPerson, or the sale of all or substantially all of the assets of the Obligated Person, otherthan in the ordinary course of business, the entry into a definitive agreement to undertakesuch an action or the termination of a definitive agreement relating to any such actions,other than pursuant to its terms, if material; and
(xiii) Appointment of a successor or additional trustee or the change of name of a trustee, ifmaterial.
“MSRB” shall mean the Municipal Securities Rulemaking Board.
“Operating Data” shall mean an update of the Operating Data contained in Appendix A of theOffering Document.
“Participating Underwriter” shall mean any of the original underwriters of the Series 2016Bonds required to comply with the Rule in connection with the offering of the Series 2016 Bonds.
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“SEC” shall mean the Securities and Exchange Commission.
“State” shall mean the Commonwealth of Kentucky.
“Turn Around Period” shall mean (i) five (5) business days, with respect to Annual FinancialInformation and Operating Data delivered by the Issuer to the Disclosure Agent; (ii) in a timely manner,but within ten (10) business days, with respect to Event occurrences disclosed by the Issuer to theDisclosure Agent; or (iii) two (2) business days with respect to the failure, on the part of the Issuer, todeliver Annual Financial Information and Operating Data to the Disclosure Agent which periodcommences upon notification by the Issuer of such failure, or upon the Disclosure Agent’s actualknowledge of such failure.
(B) This Agreement applies to the Series 2016 Bonds and any Additional Bonds issued underthe Trust Agreement.
(C) The Disclosure Agent shall have no obligation to make disclosure about the Series 2016Bonds or the Project except as expressly provided herein; provided that nothing herein shall limitthe duties or obligations of the Disclosure Agent, as Paying Agent, under the Trust Agreement.The fact that the Disclosure Agent or any affiliate thereof may have any fiduciary or bankingrelationship with the Issuer, apart from the relationship created by the Trust Agreement, shall notbe construed to mean that the Disclosure Agent has actual knowledge of any event or conditionexcept in its capacity as Paying Agent under the Trust Agreement or except as may be providedby written notice from the Issuer.
Section 2. Disclosure of Information.
(A) General Provisions. This Agreement governs the Issuer’s direction to theDisclosure Agent, with respect to information to be made public. In its actions under thisAgreement, the Disclosure Agent is acting not as Paying Agent but as the Issuer’s agent.
(B) Information Provided to the Public. Except to the extent this Agreement ismodified or otherwise altered in accordance with Section 3 hereof, the Issuer shall makeor cause to be made public the information set forth in subsections (1), (2) and (3) below:
(1) Annual Financial Information and Operating Data. Annual FinancialInformation and Operating Data at least annually not later than 180 days following theend of each fiscal year, beginning with the fiscal year ending June 30, 2016 andcontinuing with each fiscal year thereafter, for which the information is provided, takinginto account the Turn Around Period, and, in addition, all information with respect to theSeries 2016 Bonds required to be disseminated by the Trustee pursuant to the TrustAgreement.
(2) Events Notices Notice of the occurrence of an Event, in a timely manner,within ten (10) business days of the occurrence of the Event.
(3) Failure to Provide Annual Financial Information. Notice of the failure ofIssuer to provide the Annual Financial Information and Operating Data by the daterequired herein.
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(C) Information Provided by Disclosure Agent to Public.
(1) The Issuer directs the Disclosure Agent on its behalf to make public inaccordance with subsection (D) of this Section 2 and within the time frame set forth inclause (3) below, and the Disclosure Agent agrees to act as the Issuer’s agent in somaking public, the following:
(a) the Annual Financial Information and Operating Data;
(b) Material Event occurrences;
(c) the notices of failure to provide information which the Issuer hasagreed to make public pursuant to subsection (B)(3) of this Section 2;
(d) such other information as the Issuer shall determine to makepublic through the Disclosure Agent and shall provide to the Disclosure Agent inthe form required by subsection (C)(2) of this Section 2. If the Issuer chooses toinclude any information in any Annual Financial Information report or in anynotice of occurrence of an Event, in addition to that which is specifically requiredby this Agreement, the Issuer shall have no obligation under this Agreement toupdate such information or include it in any future Annual Financial Informationreport or notice of occurrence of an Event; and
(2) The information which the Issuer has agreed to make public shall be inthe following form:
(a) as to all notices, reports and financial statements to be providedto the Disclosure Agent by the Issuer, in the form required by the TrustAgreement or other applicable document or agreement; and
(b) as to all other notices or reports, in such form as the DisclosureAgent shall deem suitable for the purpose of which such notice or report is given.
(3) The Disclosure Agent shall make public the Annual FinancialInformation, the Operating Data, the Event occurrences and the failure to provide theAnnual Financial Information and Operating Data within the applicable Turn AroundPeriod. Notwithstanding the foregoing, Annual Financial Information, Operating Data,and Events shall be made public on the same day as notice thereof is given to theBondholders of outstanding Series 2016 Bonds, if required in the Trust Agreement, andshall not be made public before the date of such notice. If on any such date, informationrequired to be provided by the Issuer to the Disclosure Agent has not been provided on atimely basis, the Disclosure Agent shall make such information public as soon thereafteras it is provided to the Disclosure Agent.
(D) Means of Making Information Public.
(1) Information shall be deemed to be made public by the Issuer or theDisclosure Agent under this Section if it is transmitted to one or more of the following asprovided in subsection (D)(2) of this Section 2:
(a) to the Bondholders of outstanding Series 2016 Bonds, by themethod prescribed by the Trust Agreement;
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(b) to the MSRB, in an electronic format as prescribed by theMSRB, accompanied by identifying information as prescribed by the MSRB;and/or
(c) to the SEC, by (i) electronic facsimile transmissions confirmedby first class mail, postage prepaid, or (ii) first class mail, postage prepaid;provided that the Issuer or the Disclosure Agent is authorized to transmitinformation to a SEC by whatever means are mutually acceptable to theDisclosure Agent or the Issuer, as applicable, and the SEC.
(2) Information shall be transmitted to the following:
(a) all Annual Financial Information and Operating Data shall betransmitted to the MSRB;
(b) notice of all Events, and notice of a failure by the Issuer toprovide Annual Financial Information on or before the date specified in Section2(B)(1) hereof, shall be transmitted to the MSRB;
(c) all information described in clause (a) shall be made available toany Bondholder upon request, but need not be transmitted to the Bondholderswho do not so request; and
(d) to the extent the Issuer is obligated to file any Annual FinancialInformation or Operating Data with the MSRB pursuant to this Agreement, suchAnnual Financial Information or Operating Data may be set forth in thedocument or set of documents transmitted to the MSRB, or may be included byspecific reference to documents available to the public on the MSRB’s InternetWebsite or filed with the SEC.
Nothing in this subsection shall be construed to relieve the DisclosureAgent, as Trustee, of its obligation to provide notices to the holders of all Series2016 Bonds if such notice is required by the Trust Agreement.
With respect to requests for periodic or occurrence information fromBondholders, the Disclosure Agent may require payment by requesting ofholders a reasonable charge for duplication and transmission of the informationand for the Disclosure Agent’s administrative expenses incurred in providing theinformation.
Nothing in this Agreement shall be construed to require the DisclosureAgent to interpret or provide an opinion concerning the information made public.If the Disclosure Agent receives a request for an interpretation or opinion, theDisclosure Agent may refer such request to the Issuer for response.
(E) Disclosure Agent Compensation. The Issuer shall pay or reimburse theDisclosure Agent for its fees and expenses for the Disclosure Agent’s services renderedin accordance with this Agreement.
(F) Indemnification of Disclosure Agent. In addition to any and all rights of theDisclosure Agent to reimbursement, indemnification and other rights pursuant to theTrust Agreement or under law or equity, the Issuer shall, to the extent permitted by law,indemnify and hold harmless the Disclosure Agent and its respective officers, directors,employees and agents from and against any and all claims, damages, losses, liabilities,
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reasonable costs and expenses whatsoever (including attorney fees) which suchindemnified party may incur by reason of or in connection with the Disclosure Agent’sperformance under this Agreement; provided that the Issuer shall not be required toindemnify the Disclosure Agent for any claims, damages, losses, liabilities, costs orexpenses to the extent, but only to the extent, caused by the willful misconduct or grossnegligence of the Disclosure Agent in such disclosure of information hereunder. Theobligations of the Issuer under this Section shall survive resignation or removal of theDisclosure Agent and payment of the Series 2016 Bonds.
Section 3. Amendment or Waiver.
Notwithstanding any other provision of this Agreement, the Issuer and the Disclosure Agent mayamend this Agreement (and the Disclosure Agent shall agree to any reasonable amendment requested bythe Issuer) and any provision of this Agreement may be waived, if such amendment or waiver issupported by an opinion of nationally recognized bond counsel or counsel expert in federal securities lawsacceptable to both the Issuer and the Disclosure Agent to the effect that such amendment or waiver wouldnot, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver hadbeen effective on the date hereof but taking into account any subsequent change in or officialinterpretation of the Rule as well as any change in circumstance.
Section 4. Miscellaneous.
(A) Representations. Each of the parties hereto represents and warrants to each otherparty that it has (i) duly authorized the execution and delivery of this Agreement by theofficer of such party whose signature appears on the execution pages hereto, (ii) that ithas all requisite power and authority to execute, deliver and perform this Agreementunder its organizational documents and any corporate resolutions now in effect, (iii) thatthe execution and delivery of this Agreement, and performance of the terms hereof, doesnot and will not violate any law, regulation, ruling, decision, order, indenture, decree,agreement or instrument by which such party is bound, and (iv) such party is not aware ofany litigation or proceeding pending, or, to the best of such party’s knowledge,threatened, contesting or questioning its existence, or its power and authority to enter intothis Agreement, or its due authorization, execution and delivery of this Agreement, orotherwise contesting or questioning the issuance of the Series 2016 Bonds.
(B) Governing Law. This Agreement shall be governed by and interpreted inaccordance with the laws of the State; provided that, to the extent that the SEC, theMSRB or any other federal or state agency or regulatory body with jurisdiction over theSeries 2016 Bonds shall have promulgated any rule or regulation governing the subjectmatter hereof, this Agreement shall be interpreted and construed in a manner consistenttherewith.
(C) Severability. If any provision hereof shall be held invalid or unenforceable by acourt of competent jurisdiction, the remaining provisions hereof shall survive andcontinue in full force and effect.
(D) Counterparts. This Agreement may be executed in one or more counterparts,each and all of which shall constitute one and the same instrument.
(E) Termination. This Agreement may be terminated by any party to this Agreementupon thirty days’ written notice of termination delivered to the other party or parties tothis Agreement; provided the termination of this Agreement is not effective until (i) theIssuer, or its successor, enters into a new continuing disclosure agreement with a
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disclosure agent who agrees to continue to provide, to the MSRB and the Bondholders ofthe Series 2016 Bonds, all information required to be communicated pursuant to the rulespromulgated by the SEC or the MSRB, (ii) nationally recognized bond counsel orcounsel expert in federal securities laws provides an opinion that the new continuingdisclosure agreement is in compliance with all State and Federal Securities laws and (iii)notice of the termination of this Agreement is provided to the MSRB.
This Agreement shall terminate when all of the Series 2016 Bonds are or are deemed to be nolonger outstanding by reason of redemption or legal defeasance or at maturity.
(F) Defaults: Remedies. A party shall be in default of its obligations hereunder if itfails to carry out or perform its obligations hereunder.
If an event of default occurs and continues beyond a period of thirty (30) days followingnotice of default given in writing to such defaulting party by any other party hereto or bya beneficiary hereof as identified in Section 4(G), the non-defaulting party or any suchbeneficiary may (and, at the request of the Participating Underwriter or the holders of atleast 25% aggregate principal amount of Outstanding Bonds, the non-defaulting partyshall), enforce the obligations of the defaulting party under this Agreement; provided,however, the sole remedy available in any proceeding to enforce this Agreement shall bean action in mandamus, for specific performance or similar remedy to compelperformance.
(G) Beneficiaries. This Agreement is entered into by the parties hereof and shallinure solely to the benefit of the Issuer, the Disclosure Agent, the ParticipatingUnderwriter and Bondholders, and shall create no rights in any other person or entity.
Section 5. Additional Disclosure Obligations.
The Issuer acknowledges and understands that other state and federal laws, including but notlimited to the Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5 promulgatedthereunder, may apply to the Issuer, and that under some circumstances compliance with this Agreement,without additional disclosures or other action, may not fully discharge all duties and obligations of theIssuer under such laws.
Section 6. Notices.
Any notices or communications to or among any of the parties to this Disclosure Agreement maybe given as follows:
To the Issuer: University of KentuckyOffice of the Treasurer301 Peterson Service BuildingLexington, Kentucky 40506-0005Attention: TreasurerTelephone/Fax: (859) 257-4758/4805
To the Disclosure U.S. Bank National AssociationAgent: Locator CN-KY-0850
One Financial SquareLouisville, Kentucky 40202Attention: Corporate Trust DepartmentTelephone/Fax: (502) 562-6436/(502) 562-6371
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Any person may, by written notice to the other persons listed above, designate a different addressor telephone number(s) to which subsequent notices or communications should be sent.
IN WITNESS WHEREOF, the Disclosure Agent and the Issuer have each caused their dulyauthorized officers to execute this Agreement, as of the day and year first above written.
UN IV E RS ITY O FKE N TUC KY , Issuer
By:Treasurer
By:
Title:
U.S .B A N K N A TIO N A L A S S O C IA TIO N ,Disclosure Agent
By:
Title: